Midterm 1 - Module 3 (1-47) Flashcards
Which of the following most likely would NOT be considered an inherent limitation of the potential effectiveness of an entity’s internal control?
Incompatible duties.
When considering internal control, an auditor should be aware of the concept of reasonale assurance, which recognizes that…
The cost of an entity’s internal control should nto exceed the benefits expected to be derived.
Proper segregation of functional responsiblities calls for separation of the function of…
Authorizatoin, recording, custody.
An entity’s ongoing monitoring activites often include
Revewing the purchasing function.
The overall attitude and awareness of antity’s board of directors concerning the importance of internal control usually is reflected in its
Control environment.
Management philosophy and operating style most likely would have a significant influence on an entity’s control environment when…
Management is dominated by on individual
Which of the following factors are included in an entity’s control einvornment?
Yes, yes, yes.
Which of the following is not a component of an entity’s internal control?
Control risk.
Which of the following is a provision of the Foreign Corrupt Practices Act?
Every publicly held company must devise, document, and maintain internal controll sufficient to provide reasonable assurances that internal control objectives are met.
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…
Cash disbursements
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?
Observing the entity’s personnel applying the activities.
Which statement is correct conerning the relevance of various types of controls to a financial audit?
Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit, but other controls may also be relevenat.
In an audit of financial statements in accordance with generally accepted auditing standards, an auditor is required to…
Document the auditor’s understanding of the entity’s internal control
In obtaining an understanding of an entity’s internal control relevant to aduit planning, an auditor is required to obtain knowledge about the…
Design of the controls pretaining to internal control componnents.
An auditor should obtain sufficient knowledge of an entity’s information system to understand the …
Process used to prepare significant accounting estimates.
When obtaining an understanding of an entity’s internal control, an auditor should concentrate on the substance of controls rather than theifomr because…
Management may establish appropriate controls but NOT enforce compliance with them.
Decision talbes differ from program flowcharts in that decision tables emphasize…
Logical relationships among conditions and actions
During the consideration of internal control in a financial statemnt audit, an auditor is NOT obligated to…
Search for significant deficiencies in the operation of the internal control.
A primary objective of proceures performed to obtain an udnerstanding of internal control is to provide an auditor with…
Knowledge necessary to assess the risks of material misstatements.
Which of the folowing statements rengarding auditor documentation of the client’s internal control is correct?
No one particular from documentation isn necessary, and the extent of documentation may vary.
In obtaining an understanding of antity’s internal control, an auditor is required to obtain knowledge about the…
No, Yes.
Which of the following may not be required on a particular audit of a nonissuer (nonpublic) company?
Tests of controls
Control risk should be assessed in terms of…
Financial statement assertions.
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…
Additional audit evidence sufficient to support a further reduction is likely to be available.
Assessing control risk at a low level most likely would involve…
Identifying specific controls relevant to specific assertions.
An audiot assesses control risk because it
Affects the level of detection risk that the auditor may accept
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
Extent of tests of details
An auditor uses the knowledge provided by the understanding of internal control and the assessed level of the risk of material misstatement primarily to
Determine the nature, timing, and extent of substanstive tests for financial statement assertions
An auditor may compensate for a weakness in internal control by increasing the
Extent of analytical procedures
Which of the following statements is correct concerning an auditor’s assessment of control risk
Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity’s internal control
Regardless of the assessed level of control risk, an auditor would perform some
Substantive tests to restrict detection risk for significant transaction classes
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?
At least every third audit
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
Inspection of documents
An auditor generally tests the segregation of duties related to inventory by
Personal inquiry and observation
The objective of tests of details of transactions performed as tests of controls is to
Evaluate whether controls operated effectively
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
It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests
In assessing control risk, an auditor ordinarily selects from a variety of techniques including
Reperformance and observation
Which of the following types of evidence would an auditor most likely examine to determine whether controls are operating as designed?
Client records documenting the use of computer programs
Which of the following is NOT a step in an auditor’s assessment of control risk?
Perform tests of details of transactions to detect material misstatements in the financial statements
To obtain audit evidence about control risk, an auditor selects tests from a variety of techniques including
Inquiry
Which of the following is LEAST likely to be evidence the auditor examines to determine whether controls are operating effectively?
Confirmations of accounts receivable
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?
Observing an entity’s employee prepare the schedule of past due accounts receivable
The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States
SEC registrants
The framework most likely to be used by management in its internal control assessment under requrements of the SOX Act of 2002 is the
COSO internal framework
Which of the following best describes a CPA’s engageent to report on an entity’s internal control over financial reporting?
An attestation engagement to form an opinion on the effectiveness of its internal control
An engagement ot examine internal control will generally
Be more extensive in scope than the assessment of control risk made during a financial statement audit
Which of the following is correct concerning the level of assistance auditors may provide in assisting management with its assessment of internal control?
Only very limited assistance may be provided
