Question 1

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

Accepted Answer

Manual controls do not rely on the client's IT environment for their operation.

Question 2

Controls can be classified as:
A)manual controls.
B)information technology general controls.
C)automated controls.
D)All of the above.

Accepted Answer

The classification of controls can be broadly defined as manual controls, automated controls, and information technology general controls. Therefore, all of the options A, B, and C are correct, making option D the best choice.

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

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 a sampling technique used to estimate the proportion of a population that possesses a certain characteristic or attribute, such as the number of invoices with errors in a population of invoices. It is not used to estimate the total dollar amount of misstatement in an account balance, which is typically done through monetary unit sampling or other methods.

Question 5

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 6

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 7

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 8

A computer program that will not allow a sale to be processed if a customer has exceeded their credit limit is an example of a:
A)detect control.
B)prevent control.
C)test of controls.
D)substantive procedure.

Accepted Answer

A prevent control is a type of control that prevents a transaction from occurring if it violates a specific rule or limit. In this case, the computer program is preventing a sale from being processed if the customer has exceeded their credit limit. This is an example of a prevent control. The other answer choices are not applicable in this scenario.

Question 9

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

Accepted Answer

Preventive controls are designed to stop errors or fraud from occurring in the first place, rather than discovering them after they have occurred.

Question 10

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

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

Question 11

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 involves comparing current results to past performance as a way to evaluate progress or identify areas for improvement. By using benchmarking as an audit strategy, the auditor can track changes in the effectiveness of application controls over time and use that information to inform future testing and auditing efforts. Therefore, the statement is true.

Question 12

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 13

Which of the following is an example of a detect control?
A)Amounts are not able to be paid to employees without first matching a valid tax file number to the employee master file.
B)Account coding on purchase orders being checked by the computer to a table of valid account numbers.
C)Quarterly reviews of credit balances in accounts receivable to determine their causes.
D)None of the above.

Accepted Answer

Quarterly reviews of credit balances in accounts receivable to determine their causes is an example of a detect control as it involves detecting potential errors or issues and addressing them after they have already occurred. Option A and B are examples of preventive controls as they aim to prevent errors from occurring in the first place. Option D is not a valid option as it does not provide an answer.

Question 14

Which of the following is an example of a prevent control?
A)Sales invoices are automatically priced using the information in the price master file.
B)Management level reviews of actual performance versus budgets.
C)Credit manager following up on an exception report showing sales made to a customer who has exceeded their credit limit.
D)A bank reconciliation.

Accepted Answer

The automatic pricing of sales invoices prevents errors or intentional manipulation of prices by employees since they cannot input the price manually.

Answer: C
 The credit manager's follow-up on sales made to a customer who has exceeded their credit limit is a preventive control to avoid credit risk and potential loss from bad debts.

Therefore, the best choices for prevent controls are A and C.

Question 15

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

Accepted Answer

Auditors generally focus their testing efforts only on those controls that are critical to their opinion on the financial statements. This helps to improve efficiency and reduce the overall level of effort required for the audit. However, this does not mean that auditors ignore other controls entirely; rather, they may perform limited testing or rely on other forms of evidence to support their conclusions about the effectiveness of those controls.

Question 16

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

Accepted Answer

A locked stock cage for high dollar-value items requires a physical key or combination to unlock, making it a purely manual control.

Question 17

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, it may be possible to reduce the extent of substantive procedures needed to estimate the dollar value of any error in an account balance. Extensive substantive procedures are not always needed in this situation.

Question 18

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 19

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

Accepted Answer

IT general controls are overarching controls that apply to all software applications and IT systems within an organization. Examples of IT general controls include access controls, change management, and disaster recovery planning. It is the specific application controls that are driven by the software application being used. These application controls are designed to support the specific functions and features of the application and to ensure the accuracy and completeness of the data processed within the application.

Question 20

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

Accepted Answer

Tests of account balances can help to identify any discrepancies, errors or inconsistencies in financial records. By examining the accuracy of account balances, auditors can gain insights into the effectiveness of internal controls and identify potential weaknesses that need to be addressed. In this way, tests of account balances can provide valuable evidence about the continued functioning of controls.

Quiz 8: Execution of the Audit Testing of Controls

Manual controls:

Controls can be classified as: