Exam

Question 1

Which of the following would not be considered a control activity?

Performance reviews.
Assessment of control risk.
Physical controls.
Information processing controls.

Answer 1

Assessment of control risk

Question 2

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.

Answer 2

Control activity

Question 3

The five internal control components do not include

Multiple Choice
Control activities.
Control risk. 
Risk assessment.
Monitoring.

Answer 3

Control risk

Question 4

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.

Answer 4

completeness

Question 5

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.

Answer 5

Use IC questionairre

Question 6

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.

Answer 6

C

Question 7

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.

Answer 7

C

Question 8

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.

Answer 8

A

Question 9

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.

Answer 9

D

Question 10

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.

Answer 10

C

Question 11

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.

Answer 11

A

Question 12

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?

Answer 12

B

Question 13

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.

Answer 13

C

Question 14

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.

Answer 14

D

Question 15

The phases of employee fraud does not include the

Multiple Choice
fraudulent act.

conversion of money to fraudster’s use.

prosecution.

cover-up.

Answer 15

C

Question 16

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.

Answer 16

D

Question 17

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.

Answer 17

C

Question 18

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.

Answer 18

B

Question 19

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.

Answer 19

C

Question 20

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.

Answer 20

C

Question 21

“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.

Answer 21

C

Question 22

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.

Answer 22

D

Question 23

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.

Answer 23

D

Question 24

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.

Answer 24

C

Question 25

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.

Answer 25

C

Question 26

Which of the following accounts does not appear in the acquisition and expenditure cycle?

Multiple Choice

Purchases Returns

Sales Returns

Cash

Prepaid Insurance

Answer 26

B

Question 27

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.

Answer 27

B

Question 28

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.

Answer 28

All D

Question 29

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.

Answer 29

D

Question 30

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.

Answer 30

C

Question 31

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.

Answer 31

C

Question 32

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.

Answer 32

A