Deck 8: Execution of the Audittesting of Controls

Question 1

Millicent Vonareva was reviewing her IT General Controls program for her client visit. She noticed an item that she thought did not belong in her "Controls to prevent unauthorized access to data" section of the program. Which item did NOT belong there?

A) Data files and critical applications are regularly backed up in offsite locations.
B) Program changes are subject to formal change management procedures.
C) Policies exist to ensure departing employees are denied access to software programs and databases.
D) All the above items belonged in the "controls to prevent unauthorized access to data" section of the program.

Answer 1

B

Question 2

The purpose of preventive controls is to discover fraud or errors that may have occurred during transaction processing and to rectify those errors.

Answer 2

False

Question 3

Benchmarking is an audit strategy that can be used to carry forward the benefit of certain application controls testing into future audit periods.

Answer 3

True

Question 4

Attribute sampling is a sampling technique used to reach a conclusion about the total dollar amount of misstatement in an account balance.

Question 5

Tracing certain amounts on the bank reconciliation to the accounting records is an example of inspection of physical evidence.

Question 6

If the tests of controls confirm the auditor's preliminary evaluation of controls, the planned substantive audit procedures are NOT modified.

Question 7

Re-performance involves the auditor re-performing the control to test its effectiveness.

Question 8

Ben Simon wants to ensure that sales in a retail outlet are NOT recorded at the wrong amount. Which preventive control will help him ensure his objective?

A) the signature of the goods by the warehouse receiver on a receiving report or a bill of lading
B) a credit check by the credit manager
C) automatic pricing of sales invoices using a master price file
D) none of the above

Question 9

Enquiry involves the auditor observing the actual control being performed.

Question 10

IT general controls are driven by the particular software application being used.

Question 11

Rolland Meilleur, a public accountant, is testing whether his client's account coding on each purchase order is checked by the computer to a table of valid account numbers, and that various logic tests are performed by the computer. He is trying to mitigate the following from going wrong:

A) detective controls not being in place.
B) amounts being posted to the wrong accounting period.
C) transactions being classified and coded to incorrect accounts.
D) all of the above.

Question 12

Rosie Garaga spent the past week designing audit procedures to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements of a major bookstore operation at the assertion level. What types of audit procedures did she employ?

A) entity-level controls
B) detective controls
C) tests of controls
D) preventive controls

Question 13

Tests of account balances can often provide evidence about the continued functioning of controls.

Question 14

Susan Struthers will be reviewing those controls that stop fraud or errors from occurring. This is an example of a review of

A) detective controls.
B) preventive controls.
C) entity-level controls.
D) transaction-level controls.

Question 15

Transaction-level controls are implemented by businesses to reduce the risk of misstatements due to error or fraud and to ensure that processes are operating effectively.

Question 16

An example of a purely manual control is a locked inventory stock cage for high dollar-value items.

Question 17

The greater the degree of reliance on an internal control, the less they test the control to provide the required assurance.

Question 18

If inherent risk is low and a reasonable level of assurance has been gained from controls testing, extensive substantive procedures need to be performed to estimate the dollar value of any error in an account balance.

Question 19

The more complex the client's operations and its internal controls, the less experienced the auditor who performs the work needs to be.

Question 20

To improve efficiency, auditors test only those controls that they believe are critical to their opinion.

Question 21

Which of the following is an example of a preventive control?

A) management level reviews of actual performance versus budgets
B) credit manager following up on an exception report showing sales made to a customer who has exceeded his or her credit limit
C) sales invoices are automatically priced using the information in the price master file
D) a bank reconciliation

Question 22

The senior auditor has no physical evidence that a control was performed, who performed it, or how effectively it was performed. What is the nature of this control?

A) internal control
B) entity-level control
C) detective control
D) preventive control

Question 23

An example of a program change control is

A) the accounts receivable clerk does not have access to the cash payments application.
B) regular and timely back-ups of data.
C) program change forms must be authorized by the IT manager.
D) all of the above.

Question 24

It is important that detective controls

A) identify all potentially significant errors.
B) completely and accurately capture all data.
C) are performed on a consistent and regular basis.
D) all of the above.

Question 25

Which of the following statements is INCORRECT?

A) The less frequently a control is performed, the more testing the auditor needs to perform to be satisfied the control is operating effectively.
B) When other controls related to a particular objective are also in place and are tested, the level of assurance that might be needed from any one control is not as high as if the auditor were relying solely on a single control.
C) The less frequently a control is performed, the less testing the auditor needs to perform to be satisfied the control is operating effectively.
D) The results of the tests in prior audits and the current audit to date affect the perception of risk.

Question 26

Enquiry involves the auditor

A) using questioning skills to determine how the control is completed and whether it appears to have been carried out properly and on a timely basis.
B) re-performing the control to test its effectiveness.
C) observing the actual control being performed.
D) testing the physical evidence to verify that a control has been performed properly.

Question 27

Theo Lillis performs the following application control procedures: (i). Control totals: Input totals are balanced and reconciled.
(ii). Reasonable checks: Actual data is compared to expected data for reasonableness.
(iii). Sequence tests: Sequential data is reviewed and exception reports are produced for missing numbers.
Which of the above application controls do these procedures apply to?

A) processing controls
B) output controls
C) input controls
D) general controls

Question 28

Manual controls

A) generally rely on the client's IT applications in some way.
B) support the ongoing functioning of the programmed aspects of preventive and detective controls.
C) can be classified as program change controls or logical access controls.
D) do not rely on the client's IT environment for their operation.

Question 29

Which of the following statements is correct?

A) Preventing errors during processing should not be an important objective of every accounting system.
B) Preventive controls can be applied to each transaction during normal processing to avoid errors occurring.
C) To be effective, controls over transactions should only include detective controls.
D) The purpose of preventive controls is to discover fraud or errors that may have occurred during transaction processing.

Question 30

Benchmarking is appropriate when

A) a reliable trail of program changes exists.
B) a programmed control can be matched to a defined program within an application.
C) the application is stable.
D) all of the above.

Question 31

The auditor had the following procedures in his audit program for a client: (i) Review performance versus forecasts.
(ii) Review performance indicators.
(iii) Review exception reports.
What are these instructions related to?

A) detective controls
B) physical controls
C) internal controls
D) entity-wide controls

Question 32

Which of the following is an example of a detective control?

A) account coding on purchase orders being checked by the computer to a table of valid account numbers
B) quarterly reviews of credit balances in accounts receivable to determine their causes
C) amounts are not able to be paid to employees without first matching a valid tax file number to the employee master file
D) none of the above

Question 33

The factors to consider when deciding the extent of testing of controls include which of the following?

A) the persuasiveness of the evidence produced by the control
B) the degree to which the auditors intend to rely on the control as a basis for limiting their substantive tests
C) how often the control is performed
D) all of the above

Question 34

When the auditor decides to include controls testing in their audit strategy, they select those controls that

A) are the easiest to test.
B) provide the most efficient and effective audit evidence.
C) provide no assurance that the controls operated effectively throughout the period of reliance.
D) provide the least efficient and effective audit evidence.

Question 35

A sampling technique used to reach a conclusion about a population in terms of a rate of occurrence is known as

A) dollar unit sampling.
B) random sampling.
C) attribute sampling.
D) haphazard sampling.

Question 36

Lucia Dottore, an audit senior, performed a review of certain application controls at a clothing manufacturing client. Which one of these controls is an input control?

A) Reconciliation of totals where input totals are compared to the output totals.
B) Output is printed to a secure printer where access is limited.
C) Reasonable checks: actual data is compared to expected data for reasonableness.
D) none of the above

Question 37

Controls can be classified as

A) information technology general controls.
B) automated controls.
C) manual controls.
D) all of the above.

Question 38

A computer program that will NOT allow a sale to be processed if a customer has exceeded its credit limit is an example of a

A) preventive control.
B) test of controls.
C) detect control.
D) substantive procedure.

Question 39

Tests of controls do NOT include which of the following auditing techniques?

A) re-performance
B) confirmation
C) enquiry
D) observation

Question 40

Tracing certain amounts on the bank reconciliation to the accounting records is an example of which technique for testing controls?

A) observation
B) enquiry
C) inspection of physical evidence
D) re-performance

Question 41

In trying to determine whether there is a need for additional detailed tests of controls, which of the following factors is considered?

A) evidence provided by other tests
B) changes in the overall control environment
C) results of enquiries and observations
D) all of the above

Question 42

Which of the following statements is correct?

A) Tests of account balances can often provide evidence about the continued functioning of controls.
B) An ineffective entity-level control environment may allow the auditor to limit their tests of controls to enquiry and observation.
C) Auditors do not need to investigate any control exceptions identified during their testing.
D) Tests of account balances never provide evidence about the continued functioning of controls.

Question 43

If inherent risk is high and no assurance has been obtained from controls testing

A) only overall analytical review procedures need to be performed to reduce detection risk to an acceptable level.
B) no further substantive testing needs to be performed.
C) extensive substantive procedures need to be performed to estimate the dollar value of any error in the account balance.
D) none of the above.

Question 44

Tests of controls will usually be carried out

A) at an interim date.
B) only after year end.
C) only by the audit engagement partner.
D) by the client's board of directors.

Question 45

If the tests of controls confirm the auditor's preliminary evaluation of controls, the planned substantive audit procedures are

A) increased.
B) not modified.
C) reduced.
D) changed.

Question 46

Which of the following would NOT be included in a test of a control working paper?

A) the purpose of the test
B) a conclusion about whether the account balance is materially misstated
C) the work performed
D) the findings/results of the testing
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