Exam Flashcards
Which of the following would not be considered a control activity?
Performance reviews.
Assessment of control risk.
Physical controls.
Information processing controls.
Assessment of control risk
An action taken to prevent, detect, and correct errors and frauds in transactions is referred to as a
Multiple Choice Dual-purpose test. Risk assessment. Control objective. Control activity.
Control activity
The five internal control components do not include
Multiple Choice Control activities. Control risk. Risk assessment. Monitoring.
Control risk
Accounting for the numerical sequence of shipping documents is a control procedure designed to achieve the internal control objective of
Multiple Choice Accuracy. Completeness. Accounting. Validity.
completeness
The most efficient means of gathering evidence about the internal control is to conduct a formal interview with knowledgeable managers and
Write a narrative description of each important control.
Prepare a flowchart illustrating the internal control.
Use an internal control questionnaire.
Use IC questionairre
Significant deficiencies are defined as conditions that
Results in a reasonable possibility that a material misstatement exists in financial statements.
Relates to either a necessary control that is missing or an existing control that is so poorly designed that it fails to satisfy the control’s objective.
Could adversely affect the organization’s ability to initiate, record, process, and report financial data in the financial statements.
Exists when the design or operation of a control does not allow the company’s management or employees to detect or prevent misstatements in a timely fashion.
C
Which of the following is not one of the elements of the control environment?
Multiple Choice
Methods of assigning authority and responsibility.
A company’s organizational structure.
Process for recording transactions and preparing financial statements.
Presence of an internal auditing function.
C
Auditors obtain an understanding of the internal control through all of the following, except
Multiple Choice
A substantive testing audit plan.
Previous experience with the company.
Responses to inquiries directed to client personnel.
A walk-through of one or more transactions.
A
A practice that would not encourage fraud would include
Multiple Choice
making profits the only measure of success for employees.
centralizing authority exclusively in top management.
insisting that everything be documented with a rule for everything.
due consideration of pressure put on employees in the work place.
D
The assertions by management regarding the cash accounts in the financial statements include all of the following except
Multiple Choice
cash balance properly reflect all cash on hand, in transit or, on deposit with third parties.
cash in all accounts exists in the name of the company.
proper internal control activities exist for all cash accounts.
all restrictions on the use of cash are disclosed.
C
The characteristics of people who commit the largest frauds would not include
Multiple Choice
employees that hold positions with little or no authority.
power to override controls.
access to largest amounts of money.
long tenure with organization.
A
Which question would be inappropriate when asking questions of personnel during a regular audit?
Multiple Choice
Is there any information you would like to furnish regarding possible fraud within this organization?
In your department, exactly who has the potential for committing fraud?
Do you think this company has any particular problem with fraud?
Do you think fraud is a problem for business in general?
B
The auditors’ information source for vouching the bank reconciliation items is the
Multiple Choice
standard bank confirmation.
bank statement at audit date.
cutoff bank statement.
accounting journal at year end.
C
The standard format for an audit approach for fraud cases would not include
Multiple Choice
test of controls activities.
audit of financial statement balances.
discovery summary for law enforcement officials.
paper trail.
D
The phases of employee fraud does not include the
Multiple Choice
fraudulent act.
conversion of money to fraudster’s use.
prosecution.
cover-up.
C
The file that contains sales transactions that were initiated in the system but are not yet completed is the:
Multiple Choice
sales detail.
inventory master.
credit check file.
pending order master.
D
To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?
Multiple Choice
Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period.
Confirm year-end transactions with regular customers.
Analyze transactions occurring within a few days before and after year-end.
Correct
Examine cash receipts in the subsequent period.
C
While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate?
Multiple Choice
Send negative accounts receivable confirmations instead of positive accounts receivable confirmations.
Use more experienced audit team members to perform year-end testing.
Increase the dollar threshold of vouching customer invoices.
Move detailed analytical procedures from year end to interim.
B
An auditor is required to confirm accounts receivable if the accounts receivable balances are
Multiple Choice
Older than the prior year.
Smaller than expected.
Material to the financial statements.
Subject to valuation estimates.
C
In the revenue and collection cycle, the order of the activities in the cycle is best illustrated by:
Multiple Choice
customer ordering, delivering goods, granting credit, and billing customers.
granting credit, billing customers, delivering goods, and processing cash receipts.
processing customer orders, granting credit, delivering goods, and billing customers.
delivering goods, billing customer, granting credit, and performing collection activities.
C
“Bill and hold” refers to an arrangement where:
Multiple Choice
sales are billed but not collected.
sales are shipped but are not recorded.
sales are recorded but are not shipped.
inventory is held but not billed.
C
When an audit team traces a sample of shipping documents to the related sales invoice copies, they are trying to find relevant evidence that:
Multiple Choice
invoiced sales were shipped.
shipments to customers were recorded as sales.
recorded sales were shipped.
shipments to customers were invoiced.
D
Which of the following is an example of a control activity that satisfies the accuracy control objective for sales invoices?
Multiple Choice
Sales are recorded in the proper account.
Recorded sales in the sales journal are supported by invoices.
Invoices, shipping documents, and sales orders are prenumbered and the numerical sequence is checked.
Invoice quantities are compared to shipment and customer order quantities.
D
A small business owner can best offset the lack of separation of duties by:
Multiple Choice
relying on the external auditor to detect errors.
installing the latest computer equipment and software.
being actively involved in the accounting process.
creating an internal audit department.
C
Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning the:
Multiple Choice
internal control over balances confirmed.
ownership of the balances confirmed.
existence of the balances confirmed.
collectability of the balances confirmed.
C
Which of the following accounts does not appear in the acquisition and expenditure cycle?
Multiple Choice
Purchases Returns
Sales Returns
Cash
Prepaid Insurance
B
To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all
Multiple Choice Vendors’ invoices. Receiving reports. Canceled checks. Purchase orders.
B
Which of the following would be an indicator of potential fraud?
Multiple Choice
Photocopies of invoices in the voucher file
Vendor invoices in numerical order
Vendors with only post office box addresses
All of these indicate potential fraud.
All D
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the
Multiple Choice
operational responsibility from the recordkeeping responsibility.
administrative controls from the internal accounting controls.
human resources function from the controllership function.
authorization of transactions from the custody of related assets.
D
A voucher would typically contain
Multiple Choice
a purchase requisition, purchase order, sales invoice, receiving report, and check copy.
a purchase requisition, sales order, sales invoice, receiving report, and check copy.
a purchase requisition, purchase order, vendor invoice, receiving report, and check copy.
a purchase requisition, sales order, vendor invoice, receiving report, and check copy.
C
To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all
Multiple Choice canceled checks. purchase orders. receiving reports. vendors' invoices.
C
When goods are received, the receiving clerk should match the goods with the
Multiple Choice
vendor’s shipping document and the purchase order.
receiving report and the vendor’s shipping document.
vendor’s invoice and the receiving report.
purchase order and the requisition form.
A
