Question 1

Which of the following would lessen the effectiveness of the internal control in a computer system?

Accepted Answer

Allowing computer operators to have access to detailed program documentation could potentially give them more control over the system, which could compromise the effectiveness of the internal controls in place.

Question 2

After the auditor has prepared a flowchart of the accounting system and control procedures surrounding sales, and assessed the design of the system, the auditor would perform tests of controls for all control procedures:

Accepted Answer

The auditor performs tests of controls for procedures considered to be strengths and plans to rely on for assessing control risk at less than high. This approach allows the auditor to evaluate the effectiveness of these controls in preventing or detecting errors or fraud.

Question 3

After obtaining an initial understanding of a client's IT controls, an auditor may decide not to perform tests of controls related to the control procedures within the IT portion of the client's internal control. Which of the following would not be a valid reason for choosing to omit tests of controls?

Accepted Answer

If the controls appear adequate, it would not be a valid reason to omit tests of controls, as adequate controls should be tested to confirm their effectiveness.

Question 4

Which of the following is likely to be least important to an auditor who is reviewing the internal control of the data processing function?

Accepted Answer

Bit storage capacity is the least important to an auditor who is reviewing the internal control of the data processing function because it is a technical aspect of the system and does not directly impact the reliability and accuracy of the processing function. The auditor would be more concerned with factors such as proper disposition of source documents, competence of operators, and ancillary program functions which can affect the validity and reliability of the data processed.

Question 5

Which of the following input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission?

Accepted Answer

The answer of Which of the following input controls is...

Question 6

The auditor obtains evidence supporting the notion that proper segregation of duties exists by:

Accepted Answer

The answer of The auditor obtains evidence supporting the notion...

Question 7

When considering the internal control for inventory with respect to segregation of duties, an auditor would be least likely to:

Accepted Answer

Inspecting documents is not directly related to segregation of duties in inventory control. The other options (making inquiries, observing procedures, and considering policy and procedure manuals) are relevant to ensuring proper segregation of duties.

Question 8

Which of the following computer documentation would an auditor most likely utilise in obtaining an understanding of internal control?

Accepted Answer

Systems flowcharts provide a visual representation of the flow of transactions through a system and the internal controls in place to ensure accuracy and completeness. This makes them a useful tool for auditors to understand the functioning of internal controls. Record layouts, program listings, and record counts may provide some information but are not as useful in understanding internal control.

Question 9

Which of the following is likely to be of least importance to an auditor in obtaining an understanding of the internal control?

Accepted Answer

While the cost-benefit ratio of data processing operations is an important consideration for management, it is not typically a significant factor in an auditor's understanding of internal control. The segregation of duties, control over source documents, and documentation maintained for accounting applications are all common areas examined by auditors to assess the effectiveness of internal control.

Question 10

Which of the following internal control features would an auditor be least likely to review?

Accepted Answer

An auditor would be least likely to review the classification of sales and cost records by products as it is not directly related to internal controls. The other options are all important internal control features that an auditor would typically review.

Question 11

Which of the following situations most likely represents a weakness in IT internal control?

Accepted Answer

The answer of Which of the following situations most likely...

Question 12

An IT input control is designed to ensure that:

Accepted Answer

An input control is designed to ensure that data received for processing are properly authorized and converted to machine-readable form. This helps to prevent errors or fraudulent data from being processed.

Question 13

The auditor observes client employees in obtaining an understanding of the internal control in order to:

Accepted Answer

Observing client employees helps to corroborate the information obtained earlier in obtaining an understanding of the internal control. This provides further assurance that the information gathered is accurate and reliable. It also provides an opportunity to identify any discrepancies or weaknesses in the internal control that may not have been apparent from the documentation alone. Choices A, B, and D are not directly related to the purpose of observing client employees in obtaining an understanding of the internal control.

Question 14

In the weekly computer run to prepare payroll cheques, a cheque was printed for an employee whose employment was terminated the previous week. Which of the following controls, if properly used, would have been most effective in preventing this error or ensuring its prompt detection?

Accepted Answer

A control total for hours worked, prepared from time-cards collected by the timekeeping department and compared to the payroll sheets, would have been most effective in preventing the error or ensuring its prompt detection because it directly relates to verifying the actual hours worked by employees. If an employee's employment was terminated, they would not have a time-card for that period, making it easier to identify and prevent the issuance of a cheque.

Question 15

Which of the following is essential to determine whether effective internal control policies and procedures have been prescribed and are being followed?

Accepted Answer

To determine whether effective internal control policies and procedures have been prescribed and are being followed, one must understand the internal control and perform tests of controls. This involves assessing the design of the internal controls and testing them to ensure that they are operating effectively. The other options listed may be useful in developing an understanding of the internal control system but are not sufficient on their own to determine whether effective internal controls exist and are being followed.

Question 16

The following are steps in the audit process:
I.prepare flowchart.
II.gather exhibits of all documents.
III.interview personnel.The most logical sequence of steps is:

Accepted Answer

It is best to start with interviewing personnel to gain an understanding of the processes and controls in place. This information can then be used to create a flowchart (I) which will help in identifying potential weaknesses in the system. Finally, gather exhibits of all documents (II) to support and verify the information gathered from interviews and the flowchart.

Question 17

For good internal control, which of the following functions should not be the responsibility of the treasurer's department?

Accepted Answer

Responsibility for data processing should be separated from the treasurer's department to ensure proper segregation of duties and reduce the risk of errors or fraud. The treasurer's department can still provide input to data processing, but should not have direct control over it. Handling cash and custody of securities are typical responsibilities of the treasurer's department, and establishing credit policies may also fall within their purview.

Question 18

A limit test is a:

Accepted Answer

A limit test is specifically designed to check whether a numerical value exceeds a predetermined limit. It is used to ensure that the data being entered into a system is valid and falls within acceptable limits. Option B refers to range checks, option C refers to sign tests, and option D refers to format tests.

Question 19

In updating a computerised accounts receivable file, which one of the following would be used as a batch control to verify the accuracy of the postings of cash receipts remittances?

Accepted Answer

The answer of In updating a computerised accounts receivable file,...

Question 20

The auditor's understanding of the client's internal control is documented to substantiate:

Accepted Answer

The auditor's understanding of the client's internal control is documented primarily to ensure compliance with auditing standards, which require auditors to assess and understand the internal control systems as part of their audit process. This helps in planning the audit and determining the nature, timing, and extent of auditing procedures.

Quiz 8: Understanding and Assessing Internal Control Part Three: Tests of Control and Tests of Details