Chapter Exam (Chapters 6-7) Flashcards
In a computerized sales processing system, which of the following controls is most effective in preventing sales invoice pricing errors?
a. Current sales prices are stored in the computer, and, as stock numbers are entered from sales orders, the
computer automatically prices the orders
b. Sales prices are reviewed and updated on a quarterly basis
c. Sales prices, as well as product numbers, are entered as sales orders are entered at remote terminal locations
d. Sales invoices are reviewed by the product managers before being mailed to customers
A
The auditors primary purpose in auditing the client’s system of internal control over financial reporting
a. to evaluate the effectiveness of the company’s internal controls over all relevant assertions in the financial
statements.
b. to efficiently conduct the Audit of Financial Statements
c. to prevent fraudulent financial statements from being issued to the public
d. to report to management that the internal controls are effective in preventing misstatements from appearing
on the financial statements.
A
Segregation of duties is an example of an internal control procedures
T or F?
TRUE
An auditor may compensate for a weakness in internal control by increasing the extent of:
a. detection risk
b. inherent risk
c. substantive tests of details
d. tests of controls
C
Which of the following is not an internal control procedure?
a. authorization
b. accounting records
c. management’s operating style
d. independent verification
C
System characteristics that may result from the nature of CIS processing include, except
a. lack of visible output
b. Difficulty of access to data and computer programs
c. Lack of visible transaction trail
d. absence of input documents
B
An auditor should consider two key issues when obtaining an understanding of a client’s internal controls. These issues are:
a. the implementation and operating effectiveness of the controls
b. the effectiveness and efficiency of the controls.
c. the design and operating effectiveness of the controls
d. the frequency and effectiveness of the controls
C
Which of the following is an acknowledged risk of using test data when auditing CIS records?
a. The method cannot be used with simulated master records
b. Test data may be useful in verifying the correctness of account balances, but not in determining the presence of processing controls
c. The test data may not include all possible types of transactions
d. The computer may not process a simulated transaction in the same way it would an identical actual transaction
C
An integrated test facility (ITF) would be appropriate when the auditor needs to
a. Monitor transactions in an application system continuously
b. Verify processing accuracy concurrently with processing
c. Trace a complex logic path through an application system
d. Verify load module integrity for production programs
B
Regarding the review of general CIS controls and CIS application controls, it may be more efficient to review the design of the application controls before reviewing the general controls.
T or F?
FALSE
Which of the following would be least likely to be considered an objective of internal control?
a. detecting management fraud
b. safeguarding assets
c. encouraging adherence to managerial policies
d. checking the accuracy and reliability of accounting data
A
Which of the following is not considered one of the 5 major components of internal control?
a. monitoring
b. control activities
c. physical control
d. risk assessment
C
The preliminary assessments of control risk are often referred to as:
a. the assessed level of control risk
b. internal control objectives risk
c. control risk
d. the planned assessed level of control risk
D
Tests of controls determine whether the database contents fairly reflect the organization’s transactions.
T or F?
FALSE
Reasonable assurance allows for:
a. high likelihood that material misstatements will not be prevented or detected by internal control
b. low likelihood that material misstatements will not be prevented or detected by internal controls
c. no likelihood that material misstatements will not be prevented or detected by internal control.
d. moderate likelihood that material misstatements will not be prevented or detected by internal control
B
