Question 1

Which of the following tests of control most likely would help assure an auditor that goods shipped are properly billed? Checking that the client has:

Accepted Answer

Examining shipping documents for matching sales invoices provides evidence that goods shipped are properly billed. This test checks that the sales invoice matches the shipping document, ensuring that the correct products were shipped and billed. Option A is a test of completeness, option C is a test of accuracy, and option D is a test of completeness and safeguarding of assets.

Question 2

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:

Accepted Answer

Since there is no audit trail of documentary evidence, the auditor will have to rely on observation and inquiry to test the control procedures. They would need to observe the process in action and ask questions about the procedures to ensure that they are being followed correctly. Confirmation and analytical procedures would not be as useful since there is no documentation to confirm or analyze.

Question 3

Evidence about which aspect(s) of internal control is usually gained when the auditor is assessing control risk?

Accepted Answer

A

Question 4

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control activities are suitably designed to prevent or detect material misstatements?

Accepted Answer

Observing the entity's personnel applying the controls would provide the auditor with firsthand evidence about the design and effectiveness of the controls in preventing or detecting material misstatements. It allows the auditor to assess whether the controls are being applied consistently by the personnel and whether any weaknesses or deficiencies in the controls are being addressed appropriately. The other choices may provide some evidence, but they are less direct and may not give as much insight into the effectiveness of the controls.

Question 5

Tracing bills of lading to sales invoices provides evidence that:

Accepted Answer

The answer of Tracing bills of lading to sales invoices...

Question 6

In the examination of which of the following general ledger accounts will tests of controls be particularly appropriate?

Accepted Answer

Controls over the sales transaction are typically important for ensuring the accuracy and completeness of revenue recognition. Therefore, tests of controls would be appropriate for the sales account. Tests of controls may also be appropriate for other accounts depending on the specific risks and controls in place, but the sales account is the most appropriate choice out of the options given.

Question 7

Assessing control risk at a level below high most likely would involve:

Accepted Answer

Assessing control risk at a level below high involves identifying specific internal controls relevant to specific assertions. This allows the auditor to rely on these controls and perform fewer substantive tests, reducing the audit effort and cost. Changing the timing of substantive tests (B) does not necessarily reduce control risk, reducing inherent risk (C) is not an appropriate way to address control risk, and performing more extensive substantive tests (D) would increase audit effort and cost, which is not necessary if the control risk can be assessed at a lower level.

Question 8

Which of the following audit tests would be regarded as a test of controls?

Accepted Answer

Tests of controls are designed to test the effectiveness of the client's internal controls, such as the adequacy of authorizations for transactions. Therefore, tests of the signatures on purchase orders to a list of approved signatories is a test of controls. The other options are substantive tests that aim to obtain evidence about the correctness or completeness of the accounts or transactions, not the effectiveness of internal controls.

Question 9

Tracing shipping documents to pre-numbered sales invoices provides evidence that:

Accepted Answer

Tracing shipping documents to pre-numbered sales invoices helps ensure that shipments to customers were indeed invoiced, indicating that the sales transaction was recorded. This process does not directly address whether there were no duplicates, if all ordered goods were shipped, or if all invoices were accounted for.

Question 10

Based on a study and evaluation completed at an interim date, the auditor concludes that no significant internal accounting control weaknesses exist. The records and procedures would most likely be tested again at year-end if:

Accepted Answer

The auditor should retest the internal accounting control system if inquiries and observations lead the auditor to believe that conditions have changed since the previous evaluation. This ensures that any new weaknesses in the system are identified and addressed. Option A is incorrect because the existence of a reliable internal accounting control system may minimize the amount of substantive testing required, but it does not, in itself, necessitate a retest. Option B is incorrect because the lack of testing by the internal auditor does not necessarily imply a need for retesting by the external auditor. Option D is incorrect because the method of sampling used during interim compliance testing is not relevant to the decision to retest.

Question 11

After obtaining an understanding of an entity's internal control system, an auditor may assess control risk at the maximum level for some account balances because he or she:

Accepted Answer

If an auditor believes that the internal controls are unlikely to be operating effectively, it means that there is a high probability that material misstatements could occur. As a result, the auditor may assess control risk at the maximum level for some account balances to compensate for the increased risk of misstatement. This means that the auditor will rely less on the entity's internal controls and conduct more substantive procedures to obtain sufficient evidence.

Question 12

To determine whether internal control structure policies and procedures operated effectively to minimise errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:

Accepted Answer

The bill of lading file is the most relevant population to sample from because it contains records of shipments made, which should be matched with invoices to ensure all shipments are invoiced.

Question 13

A procedure that would most likely be used by an auditor in performing tests of controls that involve segregation of functions and that leave no transaction trail is:

Accepted Answer

Observation is the best choice as it involves physically watching the employees to ensure they are performing their duties as they should be. This is most effective in situations where the auditor cannot rely on transaction trails, such as where manual processes are involved. Inspection, reconciliation, and re-performance would not be effective as they all require some form of documentation or transaction history.

Question 14

Test of controls must be performed:

Accepted Answer

Test of controls must be performed to ensure that controls that are to be relied upon are operating effectively throughout the entire year. This is done to obtain assurance that the control implemented is adequate and effective in achieving its intended purpose.

Question 15

When undertaking tests of controls which are related to controls built around a major transaction flow, which assertion would be of least interest to the auditor?

Accepted Answer

When testing controls around a major transaction flow, the auditor is primarily concerned with the accuracy, completeness, and occurrence of the transactions. The rights and obligations assertion is less relevant in this context, as it pertains more to the ownership and legal obligations associated with assets and liabilities, which are not as directly related to transaction flows.

Question 16

For effective internal control, the billing function should be performed by the:

Accepted Answer

The accounting department should perform the billing function to ensure effective internal control. This department is responsible for overseeing the financial records of the company and ensuring that financial transactions are recorded accurately and timely. By having the accounting department oversee the billing function, it helps to reduce the risk of errors and fraud in the billing process. Additionally, the accounting department can conduct regular audits to ensure that the billing process is functioning effectively and efficiently.

Question 17

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

Accepted Answer

Inspection involves examining and reviewing documents, records, and procedures to assess control effectiveness. This would be a commonly used procedure as part of an auditor's tests of controls. Reconciliation, analytical procedures, and confirmation are substantive procedures that focus on the accuracy and completeness of transactions, balances, and disclosures. While they may be included in an overall audit program, they are not typically part of tests of controls.

Question 18

When undertaking tests of controls which are related to controls built around a major transaction flow, which assertion would be of least interest to the auditor?

Accepted Answer

Valuation or allocation is typically more relevant to account balances rather than transaction flows, making it of least interest when testing controls around transactions.

Question 19

An auditor may decide to assess control risk at high for certain assertions because the auditor believes:

Accepted Answer

If an auditor believes that evaluating the effectiveness of control policies and procedures is inefficient, they may decide to assess control risk at high for certain assertions. This means that the auditor will rely less on the controls and put more emphasis on substantive tests of transactions and balances.

Question 20

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of:

Accepted Answer

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the accuracy of the cut-off process, which is management's assertion that transactions are recorded in the correct accounting period.

Quiz 9: Tests of Controls

Which of the following tests of control most likely would help assure an auditor that goods shipped are properly billed? Checking that the client has:

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:

Evidence about which aspect(s) of internal control is usually gained when the auditor is assessing control risk?

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control activities are suitably designed to prevent or detect material misstatements?

Tracing bills of lading to sales invoices provides evidence that:

In the examination of which of the following general ledger accounts will tests of controls be particularly appropriate?

Assessing control risk at a level below high most likely would involve:

Which of the following audit tests would be regarded as a test of controls?

Tracing shipping documents to pre-numbered sales invoices provides evidence that:

Based on a study and evaluation completed at an interim date, the auditor concludes that no significant internal accounting control weaknesses exist. The records and procedures would most likely be tested again at year-end if:

After obtaining an understanding of an entity's internal control system, an auditor may assess control risk at the maximum level for some account balances because he or she:

To determine whether internal control structure policies and procedures operated effectively to minimise errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:

A procedure that would most likely be used by an auditor in performing tests of controls that involve segregation of functions and that leave no transaction trail is:

Test of controls must be performed:

When undertaking tests of controls which are related to controls built around a major transaction flow, which assertion would be of least interest to the auditor?

For effective internal control, the billing function should be performed by the:

Which of the following procedures most likely would be included as part of an auditor's tests of controls?

When undertaking tests of controls which are related to controls built around a major transaction flow, which assertion would be of least interest to the auditor?

An auditor may decide to assess control risk at high for certain assertions because the auditor believes:

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of: