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| 1 | |
An entity's internal control consists of the policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved. Only some of these objectives, policies, and procedures are relevant to a financial statement audit. Which one of the following would most likely be considered for testing in a financial statement audit? |
| | A) | Timely reporting and review of quality control results. |
| | B) | Maintenance of control over unused checks. |
| | C) | Marketing analysis of sales generated by advertising projects. |
| | D) | Maintenance of statistical production analyses. |
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| 2 | |
An internal control questionnaire (ICQ) contains the following question: "Does a single individual receive and list cash receipts and perform posting to sales and general ledgers?" What action should an auditor take if the manager of accounting responds "yes" to the question? |
| | A) | No action is required because "yes" responses on an ICQ indicate the presence of good control. |
| | B) | Statistically sample the response along with all other "yes" responses to verify their accuracy. |
| | C) | Treat it as a potential control weakness and perform appropriate testing. |
| | D) | Include it with other reportable findings in next year's audit report. |
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| 3 | |
The primary responsibility for establishing and maintaining internal controls rests with |
| | A) | The internal auditors. |
| | B) | Management. |
| | C) | The Public Company Accounting Oversight Board. |
| | D) | The external auditors. |
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| 4 | |
Which internal control documentation method provides the auditor with the best visual understanding of a system and can be used as a means for analyzing complex operations? |
| | A) | A flowcharting approach. |
| | B) | A questionnaire approach. |
| | C) | A matrix approach. |
| | D) | A detailed narrative approach. |
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| 5 | |
Which of the following factors are included in an entity's control environment?
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| | A) | a. |
| | B) | b. |
| | C) | c. |
| | D) | d. |
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| 6 | |
An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about |
| | A) | The efficiency of management's decision making process. |
| | B) | Appropriate prices the entity should charge for its products. |
| | C) | Methods of assigning production tasks to employees. |
| | D) | The entity's ability to process and summarize financial data. |
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| 7 | |
In addition to gaining an understanding of the internal controls for a private company, an external auditor, at minimum, would be expected to |
| | A) | Evaluate the internal auditors' work as an important part of the accounting system element of the internal controls. |
| | B) | Observe client employees to determine the extent of their compliance with quality control standards. |
| | C) | Document their understanding of the internal control system. |
| | D) | Study organization charts to obtain an understanding of the informal lines of communication. |
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| 8 | |
An advantage of an internal control questionnaire is |
| | A) | Flexibility in design and application. |
| | B) | Its strict adherence to a yes/no format. |
| | C) | That it always provides sufficient data for the assessment of control risk. |
| | D) | Its relative ease of completion. |
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| 9 | |
Which of the following is an inherent limitation of any client's internal control? |
| | A) | The benefits expected to be derived from effective internal controls usually do not exceed the costs of effective internal controls. |
| | B) | The competence and integrity of client personnel provide an environment conducive to control and provides assurance that effective control will be achieved. |
| | C) | Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against frauds perpetrated by management. |
| | D) | Procedures whose effectiveness depends on separation of duties can be circumvented by collusion. |
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| 10 | |
Internal controls are designed to provide reasonable assurance that |
| | A) | Management's plans have not been circumvented by worker collusion. |
| | B) | The internal auditing department's guidance and oversight of management's performance is accomplished effectively and efficiently. |
| | C) | Management's planning, organizing, and directing processes are properly evaluated. |
| | D) | Material errors or fraud would be prevented or detected and corrected within a timely period by employees in the course of performing their assigned duties. |
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