Test 2 - Ch.7

Question 1

In a public company, management must assess and report on internal control over financial reporting (T/F)

Answer 1

True

Question 2

According to PCAOB, who is responsible for the reliability of the internal controls over financial reporting?

Answer 2

The entity’s CEO and/or CFO

Question 3

Section 404 of SOX requires the auditor to provide what?

Answer 3

Reasonable assurance on both the financial statements and internal controls.

Question 4

Name 3 topics management must address as part of their internal control assessment process.

Answer 4

1. Multiple Locations
2. Service Organizations
3. Safeguarding Assets

Question 5

The auditor’s report contains an opinion on the effectiveness of internal control over financial reporting based on the auditor’s independent work (T/F).

Answer 5

True

Question 6

Prior to issuing a report on internal controls over financial reporting, an auditor is required to do what?

Answer 6

Communicate to management, in writing, all control deficiencies identified during the audit and inform the audit committee when such a communication has been made.

Question 7

Management’s written representations concerning internal control are signed by who?

Answer 7

CEO and CFO

Question 8

Management disclosure of material weakness corrected during the period would result in what type of audit opinion.

Answer 8

Unqualified

Question 9

A material weakness of internal controls results in what type of audit opinion?

Answer 9

Adverse

Question 10

The absence of misstatements in financial statements is considered convincing evidence that existing controls are effective (T/F).

Answer 10

False

Question 11

The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. This is an example of what?

Answer 11

A deficiency in operation

Question 12

The auditor should provide recommendations for improving internal control in the audit report (T/F)

Answer 12

False

Question 13

A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a…

Answer 13

Deficiency in Operation

Question 14

The financial statement amounts exposed to a deficiency effects the likelihood that a control deficiency could result in a misstatement (T/F)

Answer 14

False

Question 15

Name 3 Entity Level Controls

Answer 15

1. Monitor results of Operations
2. Risk Assessment Procedures
3. Period-End financial Close Procedures

Question 16

What type of controls are most likely to best tested during an interim period?

Answer 16

Controls that operate on a continuous basis

Question 17

If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on what for their assessment

Answer 17

Self-Assessment & Entity-Level controls

Question 18

A type of audit procedure that traces a transaction from each major class of transaction from origination through the company’s information system until it is reflected in the company’s financial reports

Answer 18

Walkthroughs

Question 19

An auditor being prevented to test internal controls should result in what type of opinion?

Answer 19

Disclaimer

Question 20

A control deficiency that is reasonably likely cause a misstatement that are not material, but significant results in what type of opinion?

Answer 20

Unqualified

Question 21

What should an auditor do when using an outside auditor opinion regarding ICFR?

Answer 21

Accept the opinion after

1. Evaluating the auditor work
2. Make reference to the auditor in the audit report

Question 22

The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit (T/F)

Answer 22

True

Question 23

Significant deficiencies and material weakness must be communicated to an entity’s audit committee because they represent…

Answer 23

Significant deficiencies in the design or operation of internal control

Question 24

The systems analyst reviews output and controls the distribution of output from the IT department represents what?

Answer 24

A weakness in internal control over IT

Question 25

A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses an IT system is that the auditor may…

Answer 25

Access computer information with limited knowledge of the client’s hardware and software