Multiple-Choice Questions
4.easy Two key concepts that underlie management’s design and implementation of internal control are: c a. costs and materiality. b. absolute assurance and costs. c. inherent limitations and reasonable assurance. d. collusion and materiality.
8.medium Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for public companies? a Management Financial statement auditors a. Yes Yes b. No No c. Yes Yes d. No No
10.easy When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be: c a. tracing. b. vouching. c. performing a walk-through. d. testing controls.
Which section of the Sarbanes-Oxley Act requires management to issue an internal control report? c a. 202 b. 203 c. 404 d. 408 12. (SOX)easy Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two requirements? a a. A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. b. A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. c. A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. d. A statement that the external auditors are solely responsible. 13. (SOX)easy When management is evaluating the design of internal control, management evaluates whether the control can do which of the following? c Detect material misstatements Correct material misstatements a. b. c. d. Yes No Yes No Yes No No Yes 14. (SOX)easy b Internal control reports issued by public companies must identify the framework used to evaluate the effectiveness of internal control. Which of the following is the most common framework in the U.? a. Effective Internal Control Framework - AICPA b. Internal Control - Integrated Framework - COSO c. Enterprise Internal Control - COSO d. Enterprise Internal Control - AICPA
When one material weakness is present at the end of the year, management of a public company must conclude that internal control over financial reporting is: c a. insufficient.
25.medium Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the: d a. adequacy of the computer system. b. proper implementation by management. c. ability of the internal audit staff to maintain it. d. competency and dependability of the people using it.
Even with the most effectively designed internal control, the auditor must obtain audit evidence, beyond testing the controls, for every: c a. transaction. b. financial statement account. c. material financial statement account. d. financial statement account that will be relied upon by third parties.
To issue a report on internal control over financial reporting for a public company, an auditor must: c a. evaluate management’s assessment process. b. independently assess the design and operating effectiveness of internal control. c. evaluate management’s assessment process and independently assess the design and operating effectiveness of internal control. d. test controls over significant account balances.
Which of the stock exchanges require listed companies to have an audit committee composed entirely of independent directors? a NYSE NASDAQ a. Yes Yes b. No No c. Yes No d. No Yes
d. No Yes
32.medium Authorizations can be either general or specific. Which of the following is not an example of a general authorization? b a. Automatic reorder points for raw materials inventory. b. A sales manager’s authorization for a sales return. c. Credit limits for various classes of customers. d. A sales price list for merchandise.
PCAOB Standard 2 requires auditors to evaluate the effectiveness of the audit committee’s oversight of the company’s: a External financial reporting Efficiency of operations Internal control over financial reporting a. Yes No Yes b. No No Yes c. Yes Yes No d. No Yes No
37.medium Which of the following principles is not necessary for the proper design and use of documents and records? a a. Designed for a single use to increase efficiency of operations. b. Constructed in a manner that encourages correct preparation. c. Prepared at the time a transaction takes place. d. Designed for multiple uses to increase efficiency of operations.
medium procedures that involve segregation of functions and that leave no transaction trail is: b a. inspection. b. observation. c. reperformance. d. reconciliation. 47.medium If the results of tests of controls support the design and operations of controls as expected, the auditor uses ____ control risk as the preliminary assessment. b a. a lower b. the same c. a higher d. either a lower or higher
50.medium Which of the following is not a likely procedure to support the operating effectiveness of internal controls? d a. Inquiry of client personnel. b. Observation of control-related activities. c. Reperformance of client procedures. d. Completing an internal control questionnaire.
Before making the final assessment of internal control at the end of an integrated audit, the auditor must: a Test controls Perform substantive tests of details a. Yes Yes b. No No c. Yes No d. No Yes
Significant deficiencies and material weaknesses in internal control of a public company must be reported to which of the following? c a. The Public Company Accounting Oversight Board. b. Members of management who are responsible for the related area of the company. c. Audit committee of the company’s board of directors. d. The AICPA.
a. No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. b. Transactions must be properly authorized before such transactions are processed. c. Because of the cost-benefit relationship, a client may apply controls on a test basis. d. Control procedures reasonably ensure that collusion among employees cannot occur. 54.medium Which of the following best describes the inherent limitations that should be recognized by an auditor when considering the potential effectiveness of internal control? a a. Procedures that depend on segregation of duties can be circumvented by collusion. b. Competent and honest client personnel provide an environment conducive to accounting control and provide absolute 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 irregularities perpetrated by management. d. The benefits expected to be derived from effective internal accounting control usually do not exceed the costs of such control.
56.medium It is important for the CPA to consider the competence of the clients’ personnel because their competence bears directly and importantly upon the: b a. cost/benefit relationship of the system of internal control. b. achievement of the objectives of internal control. c. comparison of recorded accountability with assets. d. timing of the tests to be performed.
60.medium Which of the following statements about auditor documentation of the client’s internal controls is correct? d a. Documentation must include flow charts. b. Documentation must include procedural write-ups. c. No documentation is necessary although it is desirable. d. No one particular form of documentation is necessary. 61.medium Significant deficiencies are matters that come to an auditor’s attention and should be communicated to an entity’s audit committee because they represent: b a. material frauds perpetrated by high-level management. b. internal control deficiencies that could adversely affect a company’s ability to initiate, record, process, or report external financial statements reliably. c. flagrant violations of the entity’s documented conflict-of-interest policies. d. intentional attempts by client personnel to limit the scope of the auditor’s field work. 62.medium How must significant deficiencies and material weaknesses be communicated to those charged with governance? b. the frequency and effectiveness of the controls. c. the design and utilization of the controls. d. The implementation and efficiency of the controls. 70.challenging The independent auditor should acquire an understanding of the internal audit function as it relates to the independent auditor’s study and evaluation of internal control because the: c a. audit programs, working papers, and reports of internal auditors can often be used as a substitute for the work of the independent auditor’s staff. b. procedures performed by the internal audit staff may eliminate the independent auditor’s need for an extensive study and evaluation of internal control. c. work performed by internal auditors may be a factor in determining the nature, timing, and extent of the independent auditor’s procedures. d. understanding of the internal audit function is an important substantive test to be performed by the independent auditor.
72.challenging d Hanlon Corp. maintains a large internal audit staff that reports directly to the chief financial officer. Audit reports prepared by the internal auditors indicate that the system is functioning as it should and that the accounting records are reliable. An independent auditor will probably: a. eliminate tests of controls. b. increase the depth of the study and evaluation of administrative controls. c. avoid duplicating the work performed by the internal audit staff. d. place limited reliance on the work performed by the internal audit staff. 73.challenging External financial statement auditors must obtain evidence regarding what attributes of an internal audit (IA) department if the external auditors intend to rely on IA’s work? d a. Integrity b. Objectivity c. Competence d. All of the above
a. is no longer a concern because there is no longer a significant deficiency or material weakness. b. is still a major concern to the auditor. c. could cause a material loss, so it must be tested using substantive procedures. d. is magnified and must be removed from the sampling process and examined in its entirety. 76.challenging After considering a client’s internal controls, an auditor has concluded that it is well designed and is functioning as intended. Under these circumstances the auditor would most likely: c a. perform tests of controls to the extent outlined in the audit program. b. determine the control procedures that should prevent or detect errors and irregularities. c. not increase the extent of predetermined substantive tests. d. determine whether transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles. 77.challenging a To obtain an understanding of an entity’s control environment, an auditor should concentrate on the substance of management’s policies and procedures rather than their form because: a. management may establish appropriate policies and procedures but not act on them. b. the board of directors may not be aware of management’s attitude toward the control environment. c. the auditor may believe that the policies and procedures are inappropriate for that particular entity. d. the policies and procedures may be so weak that no reliance is contemplated by the auditor. Essay Questions78.medium Describe each of the three broad objectives management typically has for internal control. With which of these objectives is the auditor primarily concerned? Answer: The three objectives are: Reliability of financial reporting. Management has both a legal and professional responsibility to be sure that the information is fairly presented in according with reporting requirements such as GAAP. Efficiency and effectiveness of operations. Controls within an organization are meant to encourage efficient and effective use of its resources to optimize the company’s goals. Compliance with laws and regulations. Public and non-public organizations are required to follow many laws and regulations. Some relate to accounting only indirectly, such as environmental protection and civil rights laws. Others are closely related to accounting, such as income tax regulations and fraud. The auditor is primarily concerned with the objective of reliable financial reporting. 79.medium Briefly describe the responsibilities of management and external auditors for internal controls. Answer: Management is responsible for establishing and maintaining the entity’s internal controls. For public companies, management is also required by Section 404 to publicly report on the operating effectiveness of those controls. In contrast, the auditor’s responsibilities include understanding and testing internal control over financial reporting. For public company clients, the auditor is also required by Section 404 to issue an audit report on management’s assessment of its internal controls, including the auditor’s opinion on the operating effectiveness of those controls.
There are four steps in the auditor’s process of understanding internal control and assessing control risk for a public company. Step one is obtain and document an understanding of internal control: design and operation. What are the remaining three steps? 84.medium What are the two primary factors that auditors consider in determining if an entity is auditable? Answer: The two primary factors are the integrity of management and the adequacy of accounting records. 85.medium Define the following terms: control deficiency, significant deficiency, and material weakness. Answer: A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis. A significant deficiency exists if one or more control deficiencies exist that results in more than a remote likelihood that a misstatement that is more than inconsequential will not be prevented or detected. A material weakness exists if a significant deficiency, by itself, or in combination with other significant deficiencies, results in a more than remote likelihood that internal control will not prevent or detect material financial statement misstatements. 86.medium Describe three inherent limitations of internal control. Answer: The effectiveness of internal controls depends on the competency and dependability of the people using it. Inherent limitations of internal control include: employee carelessness, lack of understanding, management override, and collusion. 87.medium The internal control framework developed by COSO includes five so-called “components” of internal control. Discuss each of these five components. Answer: Five components of internal control are: The control environment. The control environment consists of the actions, policies, and procedures that reflect the overall attitudes of top management about control and its importance to the company. Risk assessment. This is management’s identification and analysis of risks relevant to the preparation of financial statements in accordance with GAAP. Information and communication. This is the set of manual and/or computerized procedures that identifies, assembles, classifies, analyzes, records, and reports a company’s transactions and maintains accountability for the related assets. Control activities. These are the policies and procedures that help ensure necessary actions are taken to address risks in the achievement of the company’s objectives. Monitoring. This is management’s ongoing and periodic assessment of the quality of internal control performance to determine that controls are operating as intended and modified when needed. 91.challenging Auditing standards related to the audits of private companies specify the extent to which auditors can rely on evidence about internal controls obtained in prior years. Briefly describe this guidance. Answer: When auditors plan to use evidence about the operating effectiveness of internal control obtained in prior audits, SAS 110 requires them to test their effectiveness at least every third year. If auditors determine that a key control has been changed since it was last tested, they should test it in the current year. When there are a number of controls tested in prior audits that have not been changed, SAS 110 requires auditors to test some of those controls each year to ensure there is a rotation of controls testing throughout the three-year period. 92.challenging Adequate separation of duties is an important control activity. Discuss the four general guidelines for separation of duties to prevent both intentional and unintentional misstatements that are of significance to auditors. Answer: The general guidelines are: Custody of assets should be separated from accounting, Authorizing transactions should be separated from custody of related assets, Operational responsibility should be separated from record-keeping, and Duties within IT should be separated. Other Objective Answer Format Questions
e 1. Management’s ongoing and periodic assessment of the quality of internal control performance to determine that controls are operating as intended and modified when needed. g 2. Company-wide policies for the approval of all transactions within stated limits. a 3. The actions, policies, and procedures that reflect the overall attitudes of top management, directors, and owners of an entity about control and its importance to the entity. f 4. Segregation of the following activities in an organization: custody of assets, accounting, authorization, and operational responsibility. i 5. Management’s identification and analysis of risks relevant to the preparation of financial statements in accordance with generally accepted accounting principles. b 6. Policies and procedures that help ensure necessary actions are taken to address risks in the achievement of the entity’s objectives. d 7. A process designed to provide reasonable assurance regarding the achievement of management’s objectives in the following categories: (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with applicable laws and regulations. 94.easy a If, when obtaining an understanding of control activities of a relatively small client, the auditor identified no control activities, the auditor would probably set a high assessment of control risk. a. True b. False 95. easy a If, when obtaining an understanding of control activities of a relatively small client, the auditor identified no control activities, the auditor would probably determine the client were unauditable. a. True b. False 96.easy b When internal controls are effective, then substantive audit tests are more reliable; thus, the extent of substantive tests should be reduced. a. True b. False 97.easy b Auditors of private companies may rely on prior periods’ tests of controls for a period not to exceed four years. a. True b. False 98.easy a In an audit of a non-public company, the less control risk there is, the smaller the amount of planned substantive evidence that is required. a. True b. False 99.easy b As a client’s information system becomes more complex, it is likely that an auditor will decrease reliance on controls and increase substantive tests to support a control risk assessment. a. True b. False 100.easy b When a company designs and implements internal controls, cost of the controls is not a valid consideration. a. True b. False
PCAOB Standard 2 requires auditors to perform walkthroughs to assist in understanding internal control. a. True b. False 102.easy b Adequate documents and records is a subcomponent of the control environment. a. True b. False 114.medium a Procedures used to obtain an understanding of internal control are normally performed on fewer transactions than procedures used to test controls. a. True b. False
For most uses, flowcharts are superior to narratives as a method of communicating the characteristics of internal control. a. True b. False 116.medium b When documenting their understanding of a client’s internal controls, auditors are required to use narratives. a. True b. False Which of the following are characteristics of a successful control system?9 Characteristics of an Effective Control Systems – Explained!. Accuracy:. Timeliness:. Flexibility:. Acceptability:. Integration:. Economic feasibility:. Strategic placement:. Corrective action:. Which of the following is not a characteristic of a good management control system?The correct answer is b. It encourages short-term profitability. While all the other options are correct, this one is not because one of the main goals of management control systems is to encourage long-term profitability.
What are the three primary characteristics of an effective control system in a business?what are the three characteristics of an effective control system? what are the 3 main mechanisms that managers use to assess output or performance? financial measures, organizational goals, and operating budgets.
Which of the following is an example of a physical control quizlet?Examples of physical controls include safes/vaults, guarded warehouses and stockrooms, firewalls on computer access, television monitoring of selected areas and alarm systems.
|
Which of the following is not a characteristic of a successful control system?
zusammenhängende Posts
Urheberrechte © © 2024 toptenid.com Inc.
