 |
| 1 | |
The requirements of Section 404 of the Sarbanes-Oxley Act of 2002 apply to |
| | A) | All companies that are subject to an independent audit. |
| | B) | Most publicly-held companies. |
| | C) | All privately-held companies. |
| | D) | All companies with sales in excess of €500 million. |
|
|
|
| 2 | |
The Sarbanes-Oxley Act of 2002 requires management to include a report on the effectiveness of ICFR in the entity’s annual report. It also requires auditors to report on the effectiveness of ICFR. Which of the following statements concerning these requirements is false? |
| | A) | The auditor should evaluate whether internal controls are effective in accurately and fairly reflecting the firm’s transactions. |
| | B) | Management’s report should state its responsibility for establishing and maintaining an adequate internal control system. |
| | C) | Management should identify material weaknesses in its report. |
| | D) | The auditor should provide recommendations for improving internal control in the audit report. |
|
|
|
| 3 | |
The role of the registered independent auditing firm relative to its clients’ internal controls under the Sarbanes-Oxley Act of 2002 is to |
| | A) | Express an opinion on whether the entity is subject to all provisions of the Securities Exchange Act of 1934. |
| | B) | Express an opinion on the effectiveness of the entity’s internal control. |
| | C) | Report to both the PCAOB and SEC those entities with unsatisfactory internal controls. |
| | D) | Provide report feedback but disclaim an opinion on management’s assessment. |
|
|
|
| 4 | |
Which of the following is not a requirement for management under Section 404 of the Sarbanes-Oxley Act of 2002? |
| | A) | Guarantee effectiveness of the entity’s ICFR. |
| | B) | Accept responsibility for the effectiveness of the entity’s ICFR. |
| | C) | Support the evaluation of the entity’s ICFR with sufficient evidence, including documentation. |
| | D) | Present a written assessment regarding the effectiveness of the entity’s ICFR as of the end of the most recent fiscal year. |
|
|
|
| 5 | |
Which of the following statements concerning control deficiencies is true? |
| | A) | Auditors are required to report all control deficiencies to the audit committee. |
| | B) | A control deficiency is a type of significant deficiency. |
| | C) | Significant deficiencies are a subset of material weaknesses that must be reported to the public. |
| | D) | The two dimensions of control deficiencies are likelihood of occurrence and magnitude. |
|
|
|
| 6 | |
A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a |
| | A) | Deficiency in design. |
| | B) | Deficiency in operation. |
| | C) | Significant deficiency. |
| | D) | Material weakness. |
|
|
|
| 7 | |
Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a misstatement in an account balance? |
| | A) | The susceptibility of the related assets or liability to loss or fraud. |
| | B) | The interaction or relationship of the control with other controls. |
| | C) | The financial statement amounts exposed to the deficiency. |
| | D) | The nature of the financial statement accounts, disclosures, and assertions involved. |
|
|
|
| 8 | |
Which of the following steps or procedures is least likely to be performed as part of management’s assessment of the effectiveness of internal controls? |
| | A) | Engaging the external auditors to conduct cut-off tests. |
| | B) | Determining the locations or business units to be evaluated. |
| | C) | Evaluating the design effectiveness and operating effectiveness of selected controls. |
| | D) | Communication of its findings to the external auditors. |
|
|
|
| 9 | |
Entity-level controls can have a pervasive effect on the entity’s ability to meet the control criteria. Which one of the following is not an entity-level control? |
| | A) | Controls to monitor results of operations. |
| | B) | Management’s risk assessment process. |
| | C) | Controls to monitor the inventory taking process. |
| | D) | The period-end financial reporting process. |
|
|
|
| 10 | |
Which of the following statements is false concerning the audit requirements of the Sarbanes-Oxley Act of 2002 and AS5 related to internal controls? |
| | A) | Management’s report should state its responsibility for establishing and maintaining effective internal control. |
| | B) | Management should identify material weaknesses in its report. |
| | C) | The auditor should evaluate whether the internal controls are effective in accurately and fairly reflecting the entity’s transactions. |
| | D) | The auditor should provide recommendations to the audit committee for improving internal control as part of the auditor’s assessment. |
|
|
|
| 11 | |
With regard to entities that have locations or business units that are judged to have financial reporting risks, the auditor |
| | A) | Need not perform any audit procedures. |
| | B) | Must first determine whether those risks are adequately addressed by entity-level controls. |
| | C) | Must first determine whether the internal audit staff has performed testing at such locations. |
| | D) | Must first evaluate the risk of financial reporting fraud. |
|
|
|
| 12 | |
Generalized audit software (GAS) would likely be used in the audit of accounts receivable for all of the following except: |
| | A) | Selection and printing of sample accounts to be confirmed. |
| | B) | Identifying weaknesses in the documentation of entity controls. |
| | C) | Performing analytical procedures using entity’s trial balance data. |
| | D) | Recomputing an estimate of the allowance for doubtful accounts based on an accounts receivable aging analysis. |
|
|
|
| 13 | |
Place the following steps in the top-down, risk-based approach to the audit of ICFR in their proper order:
1. Identify significant accounts and disclosures and their relevant assertions.
2. Select controls to test.
3. Understand likely sources of misstatement.
4. Identify entity level controls. |
| | A) | 1, 2, 3, 4. |
| | B) | 4, 1, 3, 2. |
| | C) | 4, 2, 1, 3. |
| | D) | 3, 4, 1, 2. |
|
|
|
| 14 | |
Which of the following controls would most likely be tested during an interim period? |
| | A) | Controls over non-routine transactions. |
| | B) | Controls over the period-end financial reporting process. |
| | C) | Controls that operate on a continuous basis. |
| | D) | Controls over transactions that involve a high degree of subjectivity. |
|
|
|
| 15 | |
If the financial reporting risks for a location are low and the entity has good entity-level controls, management may rely on which of the following for its assessment? |
| | A) | Documentation and test controls over specific risks. |
| | B) | Self-assessment processes in conjunction with entity-level controls. |
| | C) | Documentation and test entity-level controls over the entire entity. |
| | D) | Selective control test at that location. |
|
|
|
| 16 | |
A walk-through is one procedure used by an auditor as part of the internal control audit. A walk-through requires an auditor to |
| | A) | Tour the organization’s facilities and locations before beginning any audit work. |
| | B) | Trace a transaction from every class of transactions from origination through the entity’s information system. |
| | C) | Trace a transaction from each major class of transactions from origination through the entity’s information system. |
| | D) | Trace a transaction from each major class of transactions from origination through the entity’s information system until it is reflected in the entity’s financial reports. |
|
|
|
| 17 | |
When auditors report on the effectiveness of internal control ‘as of’ a specific date and obtain evidence about the operating effectiveness of controls at an interim date, which of the following items would be the least helpful in evaluating the additional evidence to gather for the remaining period? |
| | A) | Any significant changes that occurred in internal control subsequent to the interim date. |
| | B) | The length of the remaining period. |
| | C) | The specific controls tested prior to the ‘as of’ date and the results of those tests. |
| | D) | The walk-through of the control system conducted at interim. |
|
|
|
| 18 | |
All of the following controls may mitigate the risk of fraud and management override except: |
| | A) | Controls over related-party transactions. |
| | B) | Controls over period-end adjusting entries. |
| | C) | Controls related to significant management estimates. |
| | D) | Controls related to executive compensation. |
|
|
|
| 19 | |
Which of the following statements is false regarding the use of the test data approach in the evaluation of an accounting system? |
| | A) | The test data should consist of only valid conditions. |
| | B) | Only one transaction generally needs to be tested. |
| | C) | The test data should consist of only those valid and invalid conditions of interest to the auditor. |
| | D) | The test data should be processed on the entity’s operating system under the auditor’s control. |
|
|
|
| 20 | |
All of the following factors should be considered by the auditor when deciding on the extent of controls testing except: |
| | A) | The nature of the control to be tested. |
| | B) | The time the auditor has to test controls before a report must be issued. |
| | C) | The frequency with which the control is applied. |
| | D) | The importance of the control. |
|
|
|
| 21 | |
'Remediation' refers to |
| | A) | Management’s required annual communication to the Audit Committee regarding changes in the ICFR. |
| | B) | The auditor’s required annual communication to the Audit Committee regarding weaknesses found in the ICFR. |
| | C) | Management’s testing of a new control designed to eliminate a previous material weakness. |
| | D) | Corrective actions taken by management to eliminate a material weakness. |
|
|
|
| 22 | |
Which of the following types of audit reports would not be appropriate for an auditor to issue on the effectiveness of an entity’s internal controls? |
| | A) | Unqualified [no material weaknesses identified]. |
| | B) | Adverse [a material weakness exists]. |
| | C) | Qualified [a significant deficiency exists]. |
| | D) | Disclaimer [unable to perform key audit procedures]. |
|
|
|
| 23 | |
Which of the following statements best describes how the requirements under Sarbanes-Oxley changed the auditor’s responsibility for issuing an opinion in connection with the audits of most public companies? |
| | A) | CPA firms are now required to add a second opinion related to the timeliness of the financial information provided to the public in addition to an opinion on the overall fairness of the financial statements. |
| | B) | CPA firms are required to rely less on their own direct evidence to support their opinion regarding the effectiveness of controls. |
| | C) | CPA firms are now required to issue a second opinion related to their evaluation of the effectiveness of internal controls in addition to an opinion on the overall fairness of the financial statements. |
| | D) | While the CPA firm is required to issue an additional opinion, that opinion is for internal use only and does not need to be made available in the entity’s annual report. |
|
|
|
| 24 | |
AnnaLisa, an auditor for N. M. Neal & Associates, is prevented by the management of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly regarded public accounting firm that the entity hired as a consultant and insists that it is a waste of time for AnnaLisa to evaluate these controls. Inventory is a material account, but procedures performed as part of the financial statement audit indicate the account is fairly stated. AnnaLisa found no material weaknesses in any other area of the entity’s internal control relating to financial reporting. What kind of report should AnnaLisa issue on the effectiveness of Lileah’s internal control? |
| | A) | An unqualified report. |
| | B) | An adverse report. |
| | C) | A disclaimer of opinion. |
| | D) | An exculpatory opinion. |
|
|
|
| 25 | |
In auditing a public company, Natalie, an auditor for N. M. Neal & Associates, identifies four deficiencies in ICFR. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably likely to result in misstatements that are not material but significant. What type of audit report should Natalie issue? |
| | A) | An unqualified report. |
| | B) | An adverse report. |
| | C) | A disclaimer of opinion. |
| | D) | An exculpatory opinion. |
|
|
|
| 26 | |
In auditing ICFR for a public company, Emily finds that the entity has a significant subsidiary located in a foreign country. Emily’s accounting firm has no offices in that country, and the entity has thus engaged another reputable firm to conduct the audit of internal control for that subsidiary. The other auditor’s report indicates that there are no material weaknesses in the foreign subsidiary’s ICFR. What should Emily do? |
| | A) | Disclaim an opinion because she cannot rely on the opinion of another auditor in dealing with a significant subsidiary. |
| | B) | Accept the other auditor’s opinion and express an unqualified opinion, making no reference to the other auditor’s report in her audit opinion. |
| | C) | Accept the other auditor’s opinion after evaluating the auditor’s work and make reference to the other auditor’s report in her audit opinion. |
| | D) | Qualify the opinion because she is unable to conduct the testing herself, and this constitutes a significant scope limitation. |
|
|
|
| 27 | |
Which of the following statements concerning control deficiencies is true? |
| | A) | The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit. |
| | B) | All significant deficiencies are material weaknesses. |
| | C) | All control deficiencies are significant deficiencies. |
| | D) | An auditor must immediately report material weaknesses and significant deficiencies discovered during an audit to the PCAOB. |
|
|
|
| 28 | |
Significant deficiencies and material weaknesses must be communicated to an entity’s audit committee because they represent |
| | A) | Material fraud or illegal acts perpetrated by high-level management. |
| | B) | Disclosures of information that significantly contradict the auditor’s going concern assumption. |
| | C) | Significant deficiencies in the design or operation of internal control. |
| | D) | Potential manipulation or falsification of accounting records. |
|
|
.