Internal Control II Flashcards
A benefit of using electronic funds transfer for international cash transactions
Reduction of the frequency of data entry errors
When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the
Debit memo
In a well-designed internal control structure, employees in the same department most likely would approve purchase orders, and also
Negotiate terms with vendors
When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud would most likely be reduced if the
Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records
The control that an entity would most likely use in safeguarding against the loss of marketable securities
An independent trust company that has no direct contact with the employees who have record keeping responsibilities has possession of the securities
The following presumption does not relate to the appropriateness of audit evidence
An auditor’s opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost
The following control procedure would be most likely to assist in reducing control risk related to the existence or occurrence of manufacturing transactions
Perpetual inventory records are independently compared with goods on hand
An auditor tests an entity’s policy of obtaining credit approval before shipping goods to customers in support of management’s financial statement assertion of
Valuation or allocation
The following question would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases
Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?
Which of the following statements concerning evidential matter is correct?
A client’s accounting data cannot be considered sufficient audit evidence to support the financial statements.
An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supports which of the following?
The planned level of assurance at the relevant assertion level
Which of the following procedures would an auditor most likely perform during an audit engagement’s overall review stage in formulating an opinion on an entity’s financial statements?
Consider whether the results of audit procedures affect the assessment of the risk of material misstatement due to fraud
Which of the following procedures would an auditor most likely perform to test controls relating to management’s assertion about the completeness of cash receipts for cash sales at a retail outlet?
Observe the consistency of the employees’ use of cash registers and tapes
Before applying principal substantive tests to the details of accounts at an interim date prior to the balance sheet date, an auditor should
Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable
Which of the following is not required documentation for an audit, in accordance with generally accepted auditing standards?
A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity’s internal control policies and procedures
In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?
A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances
Under which of the following circumstances should an auditor consider confirming the terms of a large complex sale?
When the combined assessed level of inherent and control risk over the sale is high
Which of the following procedures most likely would assist an auditor in determining whether management has identified all accounting estimates that could be material to the financial statements?
Review the lawyer’s letter for information about litigation
The auditor’s responsibility to communicate with those charged with governance about fair value measurements and disclosure issues is best described by the following statement
The auditor should determine whether those charged with governance are informed about management’s processes in developing material fair value estimates, including significant assumptions used by management
The auditing procedure that provides the best indicator of “fair value” is
Examining published price quotations in an active market
