Question 1

Key controls are those:
A)Over significant risks.
B)Over physical access.
C)On which the auditor intends to rely.
D)Designed by the audit committee to prevent management fraud.

Accepted Answer

Key controls are those over significant risks.

Question 2

An auditor has uncovered suspicious expense reimbursements paid to the Chief Executive
Officer of its audit client.The auditor should:
A)Discuss the matter with the Chief Executive Officer.
B)Report the matter in writing to the Chief Financial Officer.
C)Report the matter in writing to the Audit Committee.
D)Report the matter in writing to the Federal Government.

Accepted Answer

The auditor should report the matter in writing to the Audit Committee, as they are responsible for overseeing the financial reporting process and addressing any issues related to management conduct.

Question 3

The most cost effective types of controls over data are:
A)Design controls.
B)Batch controls.
C)Input controls.
D)Monitoring controls.

Accepted Answer

The answer of The most cost effective types of controls...

Question 4

Identify three general categories of misstatements and give an example of each.

Accepted Answer

The answer of Identify three general categories of misstatements and...

Question 5

An auditor is required to obtain a sufficient understanding of internal control ---to plan the audit.This requirement encompasses obtaining an understanding of the control environment, the accounting system, and the control policies and procedures.
Required:
A) What are some of the reasons for obtaining an understanding of an audit client's internal control?
B) What audit work is required for an auditor to be able to assess control risk below maximum?
C) Should an auditor always try to obtain enough evidence to be able to assess control risk below maximum? Explain.

Accepted Answer

The answer of An auditor is required to obtain a...

Question 6

Process alignment refers to:
A)The way that various IT systems are integrated to operate effectively as one system.
B)Control activities to ensure records are properly retained and secured.
C)Ensuring all network devices are at the current patch level.
D)Ensuring that firewalls are in place, backed up by password protection over data access.

Accepted Answer

Process alignment refers to the integration and coordination of various IT systems to function effectively as a unified system.

Question 7

Before concluding on the effectiveness of a control, an auditor must determine:
A)The required degree of company compliance with control procedures.
B)The maximum possible dollar amount that would not affect a user's decision based on the financial statements.
C)The actual degree of company compliance with control procedures.
D)The nature, extent and timing of planned substantive procedures.

Accepted Answer

The answer of Before concluding on the effectiveness of a...

Question 8

An auditor does not need to test:
A)Control strengths because they are known to be strengths.
B)Control weaknesses because they are known to be weak.
C)Control strengths because they offset weaknesses.
D)Control weaknesses because they are offset by strengths.

Accepted Answer

The answer of An auditor does not need to test:
A)Control...

Question 9

The Handbook Section "Communication with Management of Matters Identified During the Financial Statement Audit" requires that:
A)All nontrivial misstatements are communicated to management in writing.
B)All nontrivial misstatements and possible illegal acts are communicated to management.
C)All serious control risks uncovered are communicated to management in writing.
D)Only frauds and illegal acts are communicated to management.

Accepted Answer

The Handbook requires that all nontrivial misstatements and possible illegal acts identified during the audit are communicated to management, ensuring they are aware of significant issues that could affect the financial statements.

Question 10

At the planning stage, the auditor's goal is to:
A)Select the most effective set of evidence gathering techniques.
B)Maximize audit fees.
C)Select the most cost effective set of evidence gathering techniques.
D)Minimize field work at remote locations.

Accepted Answer

The answer of At the planning stage, the auditor's goal...

Question 11

Anyone who designs a processing system should:
A)Not do the documentation.
B)Be independent of management.
C)Have access to the data so they can make the system more efficient.
D)Not do the technical programming work.

Accepted Answer

The answer of Anyone who designs a processing system should:
A)Not...

Question 12

One control benefit of an IT system is that it:
A)Is efficient at processing large, unusual or non-recurring transactions.
B)Can monitor the effectiveness of automated controls.
C)Adjusts rapidly to changing business processes.
D)Reduces the risk of controls being overridden.

Accepted Answer

Reduces the risk of controls being overridden.

Question 13

Which of the following statements is true?
A)Testing of controls is the most cost efficient way of designing each audit.
B)Substantive testing is the most cost efficient way of designing each audit.
C)As the work of testing of controls increases, the cost of substantive work increases.
D)There is a point where further testing of controls becomes more expensive than performing substantive test.

Accepted Answer

There is a point where further testing of controls becomes more expensive than performing substantive tests, as excessive control testing can lead to diminishing returns and increased costs.

Question 14

Control tests should be applied to samples of transactions and control procedures:
A)Which occurred during the interim audit so that they provide direct auditor's knowledge.
B)Selected by management as being representative of all transactions processed.
C)Throughout the period being audited.
D)Which occur primarily close to reporting period ends such as year end or quarter end.

Accepted Answer

Control tests should be applied throughout the period being audited to ensure that controls are operating effectively over the entire period, not just at specific times.

Question 15

If there have been no changes to a control which a previous audit has found to be working effectively:
A)An auditor must still test the controls and not place reliance on the prior year's testing.
B)An auditor must still test the controls but not to the same extent as the prior year's testing.
C)An auditor can rely on the prior year's work and not test controls in the current year.
D)An auditor can rely on the prior year's work but should test the controls every few years.

Accepted Answer

An auditor can rely on prior year's work if there have been no changes, but periodic testing is necessary to ensure continued effectiveness.

Question 16

What internal control objective is affected by cut off errors? Why are they of such concern to auditors?

Accepted Answer

The answer of What internal control objective is affected by...

Question 17

A "walk through" test is:
A)A means of ensuring that transactions are processed as described in the control system flowchart.
B)A test of physical security over access to computer rooms.
C)A computer assisted technique for processing client data on a different system.
D)An audit procedure carried out at the planning stage of an audit.

Accepted Answer

A "walk through" test involves tracing a transaction through the entire process as described in the control system flowchart to ensure that the system operates as intended.

Question 18

The internal control objective of accuracy is related to the financial statement assertion of:
A)Occurrence
B)Completeness
C)Valuation
D)Presentation

Accepted Answer

Accuracy in internal control ensures that transactions are recorded at the correct amounts, which directly relates to the valuation assertion in financial statements.

Quiz 9: Control Assessment and Testing

Key controls are those:

An auditor has uncovered suspicious expense reimbursements paid to the Chief Executive Officer of its audit client.The auditor should:

The most cost effective types of controls over data are:

Identify three general categories of misstatements and give an example of each.

Process alignment refers to:

Before concluding on the effectiveness of a control, an auditor must determine:

An auditor does not need to test:

The Handbook Section "Communication with Management of Matters Identified During the Financial Statement Audit" requires that:

At the planning stage, the auditor's goal is to:

Anyone who designs a processing system should:

One control benefit of an IT system is that it:

Which of the following statements is true?

Control tests should be applied to samples of transactions and control procedures:

If there have been no changes to a control which a previous audit has found to be working effectively:

What internal control objective is affected by cut off errors? Why are they of such concern to auditors?

A "walk through" test is:

The internal control objective of accuracy is related to the financial statement assertion of: