Chap 11+12: Internal Control

Question 1

Audit evidence concerning proper segregation of duties normally is best obtained by:

Answer 1

observation

Question 2

The person responsible for reconciling sales invoices to customer orders does not access to the
company’s master price list in order to correctly compute sales. This is an example of a(n):

Answer 2

Design Deficiency

Question 3

3) The employee in charge of authorizing credit to the company's customers does not fully understand 
the concept of credit risk. 
#Lack of knowledge

Answer 3

Operational Defciency

Question 4

control deficiency

Answer 4

design or operation of controls does not permit company personnel to
prevent or detect misstatements on a timely basis.

Question 5

design deficiency

Answer 5

exists if a necessary control is missing or not properly formulated

Question 6

Significant deficiencies need to be communicated to the company’s audit committee because:

Answer 6

they represent significant design flaws in internal controls.

Question 7

When planning an audit, the auditor’s assessed level of control risk is:

Answer 7

a judgment issue, based on auditor knowledge.

Question 8

When a compensating control exists, the absence of a key control:

Answer 8

no longer a concern

Question 9

If the results of tests of controls support the design and operations of controls as expected

Answer 9

the auditor

uses the same control risk as the preliminary assessment.

Question 10

After considering a client’s internal controls, an auditor has concluded that it is well designed and is
functioning as intended. Under these circumstances the auditor would most likely:

Answer 10

not increase the extent of predetermined substantive tests.