Question 1

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

Accepted Answer

The purpose of preventive controls is to stop errors or fraud from occurring in the first place, not to discover or rectify them after they have occurred.

Question 2

Benny Pecarve is planning to visit an airline company to review the collective assessment of the client's control environment, risk assessment process, information system, control activities and monitoring of controls. What does this mandate describe?
A) entity level controls
B) transaction-level controls
C) both a and b
D) none of the above

Accepted Answer

The mandate described is for reviewing the entity-level controls which include the client's control environment, risk assessment process, information system, control activities, and monitoring of controls. This is not specific to transaction-level controls.

Question 3

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

Accepted Answer

The more complex the client's operations and internal controls, the more experienced the auditor who performs the work needs to be. Complex audits require auditors with specialized skills and knowledge to effectively detect and address potential issues.

Question 4

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

Accepted Answer

If the tests of controls confirm the auditor's preliminary evaluation of controls, it means that the auditor's understanding of the control activities is accurate, and there are no material weaknesses in the system. Therefore, it is not necessary to modify the planned substantive audit procedures.

Question 5

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

Accepted Answer

IT general controls are designed to apply to the entire IT infrastructure of an organization, regardless of the specific software applications being used. These controls include areas such as access controls, change management, and backup and recovery procedures. Application-specific controls, on the other hand, are tailored to the particular software being used and are meant to ensure the integrity, confidentiality, and availability of the data processed by that application.

Question 6

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

Accepted Answer

Benchmarking allows auditors to establish a baseline for performance and effectiveness of application controls, which can then be used to compare against future testing results. This helps in identifying any anomalies or changes in the control environment and can be used to target specific areas for testing during future audits.

Question 7

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

Accepted Answer

Automatic pricing of sales invoices using a master price file will ensure that the sales are recorded at the correct amount and prevent any errors or fraud in the sales process. The other options mentioned in the question are either related to receiving goods or managing credit, which are not directly related to recording sales at the correct amount.

Question 8

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.

Accepted Answer

This statement is true. Transaction-level controls, also known as internal controls, are put in place by businesses to reduce the risk of errors or fraud occurring in individual transactions. These controls also help ensure that processes are working correctly and efficiently.

Question 9

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

Accepted Answer

Tests of account balances can reveal inaccuracies, omissions, or misstatements in account balances, which could be an indication of ineffective controls. Conversely, if the test results are accurate, it suggests that the controls over the related account balances are functioning properly.

Question 10

Rolland Meilleur, 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.

Accepted Answer

The answer of Rolland Meilleur, public accountant, is testing whether...

Question 11

Sue Stableford 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.

Accepted Answer

The answer of Sue Stableford will be reviewing those controls...

Question 12

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

Accepted Answer

The greater the degree of reliance on an internal control, the more auditors test the control to ensure it is effective and can be relied upon for assurance.

Question 13

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

Accepted Answer

Auditors prioritize their testing on controls that are deemed critical to their opinion, potentially skipping non-critical controls to optimize time and efficiency.

Question 14

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

Accepted Answer

Re-performance is a testing technique used by auditors to test the effectiveness of control by performing the control again. It helps the auditor to obtain sufficient and appropriate evidence.

Question 15

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

Accepted Answer

A locked stock cage requires physical manipulation to control access to high dollar-value items, without any automation or technological intervention.

Question 16

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.

Accepted Answer

If inherent risk is low and a reasonable level of assurance has been gained from controls testing, then extensive substantive procedures may not be necessary to estimate the dollar value of any error in an account balance. Less substantive procedures may be sufficient to obtain a reasonable level of assurance.

Question 17

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

Accepted Answer

Attribute sampling is used to test the rate of occurrence of a specific attribute (such as the occurrence of a control in a sample of transactions), not to determine the total dollar amount of misstatement in an account balance. Dollar sampling is a technique used for determining the dollar amount of misstatement in an account balance.

Question 18

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

Accepted Answer

Tracing certain amounts on the bank reconciliation to the accounting records involves physically inspecting the relevant documents and comparing them for accuracy, which is an example of inspection of physical evidence.

Question 19

Enquiry involves the auditor observing the actual control being performed.

Accepted Answer

Enquiry involves asking questions and obtaining written or oral responses from management or staff, not observing controls being performed. Observation is a separate audit procedure.

Question 20

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) Aall the above items belonged in the "controls to prevent unauthorized access to data" section of the program.

Accepted Answer

The answer of Millicent Vonareva was reviewing her IT General...

Quiz 8: Execution of the Audit Testing of Controls