Internal Control

Question 1

Assessing control risk at below the maximum level most likely would involve

Answer 1

Identifying specific internal control structure policies and procedures relevant to specific assertions.

Question 2

What are the component of internal control

Answer 2

COSO’s Internal Control Integrated Framework identifies five components of an internal control system: (1) control environment; (2) risk assessment; (3) control activities; (4) information and communication system; and (5) monitoring.

Question 3

An auditor should obtain sufficient knowledge of an entity’s accounting system to understand the

Answer 3

Process used to prepare significant accounting estimates

Question 4

What actions should the auditor take in response to discovering a deviation from the prescribed control procedure?

Answer 4

Make inquiries to understand the potential consequence of the deviation

Question 5

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

Answer 5

Document the auditor’s understanding of the entity’s internal control structure.

Question 6

The objective of tests of details of transactions performed as tests of controls is to

Answer 6

Evaluate whether an internal control structure policy or procedure operated effectively

Question 7

Which auditor concern most likely could be so serious that the auditor concludes that a financial statement audit cannot be performed?

Answer 7

There is a substantial risk of intentional misapplication of accounting principles.

Question 8

Which of the following statements concerning an auditor’s communication of significant deficiencies is correct?

Answer 8

Any report issued on significant deficiencies should indicate that providing assurance on the internal control structure was not the purpose of the audit

Question 9

When assessing the internal auditors’ competence, the independent CPA should obtain information about the

Answer 9

Educational background and professional certification of the internal auditors.

Question 10

When assessing the competence of the internal auditors, an independent CPA should obtain information about the

Answer 10

Quality of the internal auditors’ working paper documentation.

Question 11

In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity’s financial statements would most likely consider the

Answer 11

Internal auditing standards developed by The Institute of Internal Auditors.

Question 12

When considering the objectivity of internal auditors, an independent auditor should

Answer 12

Determine the organizational level to which the internal auditors report.

Question 13

What would most likely be the result of ineffective internal control policies and procedures in the revenue cycle?

Answer 13

Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme

Question 14

Tracing bills of lading to sales invoices provides evidence that

Answer 14

Shipments to customers were invoiced

Question 15

The procedure which would most likely not be an internal control procedure designed to reduce the risk of errors in the billing process?

Answer 15

Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger

Question 16

Which internal control procedure would most likely assure that all billed sales are correctly posted to the accounts receivable ledger?

Answer 16

Daily sales summaries are compared to daily postings to the accounts receivable ledger

Question 17

An auditor would be most likely to limit substantive audit tests of sales transactions when control risk is assessed as low for the existence or occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting

Answer 17

Cash receipts and accounts receivable

Question 18

An auditor would consider a cashier’s job description to contain compatible duties if the cashier receives remittances from the mailroom and also prepares the

Answer 18

Daily deposit slip

Question 19

Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and

Answer 19

Deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts

Question 20

The authority to accept incoming goods in receiving should be based on a(an)

Answer 20

Approved purchase order