Midterm 1 - Module 3 (1-47)

Question 2

Which of the following most likely would NOT be considered an inherent limitation of the potential effectiveness of an entity’s internal control?

Answer 2

Incompatible duties.

Question 3

When considering internal control, an auditor should be aware of the concept of reasonale assurance, which recognizes that…

Answer 3

The cost of an entity’s internal control should nto exceed the benefits expected to be derived.

Question 4

Proper segregation of functional responsiblities calls for separation of the function of…

Answer 4

Authorizatoin, recording, custody.

Question 5

An entity’s ongoing monitoring activites often include

Answer 5

Revewing the purchasing function.

Question 6

The overall attitude and awareness of antity’s board of directors concerning the importance of internal control usually is reflected in its

Answer 6

Control environment.

Question 7

Management philosophy and operating style most likely would have a significant influence on an entity’s control environment when…

Answer 7

Management is dominated by on individual

Question 8

Which of the following factors are included in an entity’s control einvornment?

Answer 8

Yes, yes, yes.

Question 9

Which of the following is not a component of an entity’s internal control?

Answer 9

Control risk.

Question 10

Which of the following is a provision of the Foreign Corrupt Practices Act?

Answer 10

Every publicly held company must devise, document, and maintain internal controll sufficient to provide reasonable assurances that internal control objectives are met.

Question 11

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors’ invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the aduitor most liekly would select items for testing from teh file of all…

Answer 11

Cash disbursements

Question 12

Which of the follwing procedures most likely would provide an auditor with evidnce about wheter an entity’s internal control activities are suitably designed to prevent or detect material misstatements?

Answer 12

Observing the entity’s personnel applying the activities.

Question 13

Which statement is correct conerning the relevance of various types of controls to a financial audit?

Answer 13

Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit, but other controls may also be relevenat.

Question 14

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

Answer 14

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

Question 15

In obtaining an understanding of an entity’s internal control relevant to aduit planning, an auditor is required to obtain knowledge about the…

Answer 15

Design of the controls pretaining to internal control componnents.

Question 16

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

Answer 16

Process used to prepare significant accounting estimates.

Question 17

When obtaining an understanding of an entity’s internal control, an auditor should concentrate on the substance of controls rather than theifomr because…

Answer 17

Management may establish appropriate controls but NOT enforce compliance with them.

Question 18

Decision talbes differ from program flowcharts in that decision tables emphasize…

Answer 18

Logical relationships among conditions and actions

Question 19

During the consideration of internal control in a financial statemnt audit, an auditor is NOT obligated to…

Answer 19

Search for significant deficiencies in the operation of the internal control.

Question 20

A primary objective of proceures performed to obtain an udnerstanding of internal control is to provide an auditor with…

Answer 20

Knowledge necessary to assess the risks of material misstatements.

Question 21

Which of the folowing statements rengarding auditor documentation of the client’s internal control is correct?

Answer 21

No one particular from documentation isn necessary, and the extent of documentation may vary.

Question 22

In obtaining an understanding of antity’s internal control, an auditor is required to obtain knowledge about the…

Answer 22

No, Yes.

Question 23

Which of the following may not be required on a particular audit of a nonissuer (nonpublic) company?

Answer 23

Tests of controls

Question 24

Control risk should be assessed in terms of…

Answer 24

Financial statement assertions.

Question 25

After assessing control risk, an auditor desires to seek a further reduction in the assessed level of control ris. At this time, the adutor would consider whether…

Answer 25

Additional audit evidence sufficient to support a further reduction is likely to be available.

Question 26

Assessing control risk at a low level most likely would involve…

Answer 26

Identifying specific controls relevant to specific assertions.

Question 27

An audiot assesses control risk because it

Answer 27

Affects the level of detection risk that the auditor may accept

Question 28

When an auditor increases the assessed level of control risk because certain control acivities were determined to be ineffective, the auditor would most likely increase the

Answer 28

Extent of tests of details

Question 29

An auditor uses the knowledge provided by the understanding of internal control and the assessed level of the risk of material misstatement primarily to

Answer 29

Determine the nature, timing, and extent of substanstive tests for financial statement assertions

Question 30

An auditor may compensate for a weakness in internal control by increasing the

Answer 30

Extent of analytical procedures

Question 31

Which of the following statements is correct concerning an auditor’s assessment of control risk

Answer 31

Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity’s internal control

Question 32

Regardless of the assessed level of control risk, an auditor would perform some

Answer 32

Substantive tests to restrict detection risk for significant transaction classes

Question 33

How frequently must an auditor test operating effectiveness of controls that appear to function as they have in past years and on which the auditor wishes to reqly in the current year?

Answer 33

At least every third audit

Question 34

Before assessing control risk at a level blower than the maximum, the auditor obtains reasonable assurance that controls are in use and operating effectively. This assurance is most likely obtained in part by

Answer 34

Inspection of documents

Question 35

An auditor generally tests the segregation of duties related to inventory by

Answer 35

Personal inquiry and observation

Question 36

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

Answer 36

Evaluate whether controls operated effectively

Question 37

After obtaining an understanding of internal control and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor most likely decided that

Answer 37

It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests

Question 38

In assessing control risk, an auditor ordinarily selects from a variety of techniques including

Answer 38

Reperformance and observation

Question 39

Which of the following types of evidence would an auditor most likely examine to determine whether controls are operating as designed?

Answer 39

Client records documenting the use of computer programs

Question 40

Which of the following is NOT a step in an auditor’s assessment of control risk?

Answer 40

Perform tests of details of transactions to detect material misstatements in the financial statements

Question 41

To obtain audit evidence about control risk, an auditor selects tests from a variety of techniques including

Answer 41

Inquiry

Question 42

Which of the following is LEAST likely to be evidence the auditor examines to determine whether controls are operating effectively?

Answer 42

Confirmations of accounts receivable

Question 43

Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain evidence in support of an assessed level of control risk below the maximum?

Answer 43

Observing an entity’s employee prepare the schedule of past due accounts receivable

Question 44

The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States

Answer 44

SEC registrants

Question 45

The framework most likely to be used by management in its internal control assessment under requrements of the SOX Act of 2002 is the

Answer 45

COSO internal framework

Question 46

Which of the following best describes a CPA’s engageent to report on an entity’s internal control over financial reporting?

Answer 46

An attestation engagement to form an opinion on the effectiveness of its internal control

Question 47

An engagement ot examine internal control will generally

Answer 47

Be more extensive in scope than the assessment of control risk made during a financial statement audit

Question 48

Which of the following is correct concerning the level of assistance auditors may provide in assisting management with its assessment of internal control?

Answer 48

Only very limited assistance may be provided