Aud 3-Internal Controls

Question 1

Who should authorize write offs?

Answer 1

Treasurer. They’re ultimately responsible for cash. Employees in AP and AR are responsible for recording but don’t have authorization duties.

Question 2

If testing ADP, what info would you include in report?

Answer 2

1) Reference to service or products being covered by report
2) Scope and nature of procedures
3) Purpose of engagement

Question 3

In an integrated audit of a private co, auditor concludes mw in mgt’s assertion, what should the auditor do?

Answer 3

Issue an adverse opinion. material weakness indicates a reasonable possibility that controls will neither prevent a material misstatement nor detect and correct on time.

Question 4

At the end of the engagement what, for ex. does the CPA include to mgmt. and those charged with governance?

Answer 4

material weaknesses and significant deficiencies.

Question 5

In a properly designed internal control structure, the same employee most likely would match vendor invoices with receiving reports and also:

Answer 5

Recompute the calculations on vendor’s invoices

Question 6

Which of the following procedures is most likely to provide evidence regarding the completeness of the amount recorded as investments in securities on the balance sheet?

Answer 6

Review of minutes of board of director meetings: This would show all purchases of securities that were authorized. Can compare to those reported.

Question 7

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also

Answer 7

Is responsible for mailing the checks: don’t want it to go into the custody of anyone else

Question 8

In an audit of financial statements in accordance with generally accepted auditing standards, an auditor is always required to

Answer 8

Obtain an understanding of the entity’s internal control

Question 9

Which of the following matters would an auditor most likely consider to be a significant deficiency or material weakness to be communicated to the audit committee?

Answer 9

Accounting personnel not being objective

Question 10

(5) Components of Internal Control (CRIME)

Answer 10

Control Environment
Risk Assessment
Information & Communication
Monitoring
Existing Control Activities

Question 11

Objectives of Internal Controls? (3)

Answer 11

1. Effective and Efficient Operations
2. Reporting
3. Compliance with laws and regulations

Question 12

An auditor is determining if internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely would select a sample of transactions from the population represented by the

Answer 12

Shipping document file: making sure every shipment out has had an invoice made for it

Question 13

Control Environment Factors (5) : “CHOPPER”

Answer 13

Commitment to Competence
HR policies and practices
Organizational Structure
Participation w. governance
Philosophy of Mgmt
Ethical Values
Responsibility Assignment

Question 14

When you express an opinion on a system of internal accounting control, it’s generally:

Answer 14

More extensive in scope that assessment of control risk made during the financial statement audit

Question 15

When reporting on conditions relating to an entity’s internal control structure observed during an audit of the financial statements, the auditor should include a:

Answer 15

The report on internal controls in an integrated audit is not a general use report. It’s restricted to management, the audit committee, and BOD.

Question 16

what would an auditor perform to obtain evidential matter around AR

Answer 16

Observe an entity’s employee preparation of the schedule of past due accounts receivable

Question 17

Which conditions are needed to accept an attest engagement and report on entity’s internal control structure over fin. reporting

Answer 17

Management presents its written assertion about the effectiveness of the internal control structure.Then auditor presents assurance over that assertion.

Question 18

Which of the following statements is correct in concerning an auditor’s required communication of internal control related matters?

Answer 18

Auditor’s report on internal control matters should include a restriction on the distribution of the report.
-communicate SDs and MWs after you have your whole audit conclusion

Question 19

What would a co. use to safeguard marketable securities when an independent trust is not employed?

Answer 19

Two company officials have joint control of marketable securities which are kept in a bank safe-deposit box

Question 20

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the:

Answer 20

Trust company has no direct contact with the entity employees responsible for investment accounting records

Question 21

What do you do when you discover a deviation?

Answer 21

Make inquiries to understand the potential consequence of the deviation

Question 22

After obtaining an understanding of the internal control structure and assessing control risk of an entity, an auditor decided not to perform test of controls. The auditor most likely decided that bc?

Answer 22

The controls are not likely to be effective at preventing or detecting misstatements or it is more efficient to perform substantive procedures.

Question 23

Which of the following levels would most likely address the risk of material misstatement by the auditor’s consideration of an entity’s control environment?

Answer 23

Financial statements: bc management has to commit to reliable financial reporting.

Question 24

Auditor usually tests segregation of duties over inventory through?

Answer 24

Personal inquiry and observation

Question 25

Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice?

Answer 25

The check signer reviews and cancels the voucher packets

Question 26

An auditor is concerned about a policy of management override as a limitation of internal control. Which of the following tests would best assess the validity of the auditor’s concern?

Answer 26

Verifying that approved spending limits are not exceeded

Question 27

Someone who receives inventory should:

Answer 27

prepare receiving reports for all good received