Question 1

AS5 requires that the auditor appropriately document the processes,procedures,judgments,and results relating to the audit of internal control.Specifically,what must this documentation include?

Accepted Answer

The answer of AS5 requires that the auditor appropriately document...

Question 2

Which of the following is true of generalized audit software packages?

Accepted Answer

Generalized audit software packages have their own unique characteristics and features, which the auditor needs to consider before selecting and using them for a particular audit engagement. They may not be universally compatible with all computer systems, and they may not necessarily reduce the cost of performing all manual test procedures.

Question 3

A modification of the standard report is required for all of the following conditions except:

Accepted Answer

The answer of A modification of the standard report is...

Question 4

For which of the following internal controls would an auditor be least likely to perform tests of internal controls closer to the "as of" date?

Accepted Answer

The answer of For which of the following internal controls...

Question 5

Which of the following statements included in management's assessment of the effectiveness of internal control over financial reporting would be considered acceptable for issuing an unqualified opinion?

Accepted Answer

Management can disclose material weaknesses that were corrected during the period, as this shows transparency and improvement, allowing for an unqualified opinion if no other issues exist.

Question 6

CBA Associates is auditing a large publicly traded company.The audit of internal controls over financial reporting has been properly planned and the auditors have already identified controls to test using a top-down,risk-based approach.What is the next step?
 Give three examples of procedures that may be completed in the next step in the audit.

Accepted Answer

The answer of CBA Associates is auditing a large publicly...

Question 7

You are performing an audit on North South Natural Gas (NSNG).Alana,an NSNG employee,has responsibility for reconciling bank statements with the company's cash records.You determine,however,that Alana has never been taught how to reconcile statements.In effect,the statements have not been properly reconciled for two years.How would you judge the significance of this control deficiency?
 How would you classify this deficiency?

Accepted Answer

The answer of You are performing an audit on North...

Question 8

Section 404 of the Sarbanes-Oxley Act includes which of the following?

Accepted Answer

The answer of Section 404 of the Sarbanes-Oxley Act includes...

Question 9

An auditor will use the IT test data method in order to gain certain assurances with respect to the

Accepted Answer

The IT test data method involves the creation of test data by the auditor to see if the program operates as expected and whether the procedures contained within the program are working properly. Therefore, the IT test data method is used to gain assurance with respect to the procedures contained within the program.

Question 10

AAA & Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting.AAA found a number of material weaknesses in the company's internal control.LinktheEarth's management remediated all of the weaknesses that AAA found.However,the auditors did not have sufficient time to retest the controls.What report should AAA issue with regards to internal control over financial reporting at year-end?

Accepted Answer

The answer of AAA & Associates recently finished auditing LinktheEarth...

Question 11

What is wrong with the following report on internal control over financial reporting for AB Corporation?
 The auditor believes an unqualified opinion on the effectiveness of internal control over financial reporting is warranted.
Report of Registered Public Accounting Firm
We have audited AB Corporation's internal control over financial reporting as of December 31,2011,based on criteria established in Internal Control - Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).AB's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting,testing and evaluating the design and operating effectiveness of internal control,and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.A company's internal control over financial reporting includes those policies and procedures that (1)pertain to the maintenance of records that,in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use,or disposition of the company's assets that could have a material effect on the financial statements.
In our opinion,AB Corporation maintained,in all material respects,effective internal control over financial reporting as of December 31,2011,based on criteria established in Internal Control - Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited,in accordance with the standards of the Public Company Accounting Oversight Board (United States),the consolidated financial statements of AB Corporation,and our report dated February 20,2012 expressed an unqualified opinion.
Protzman & Hull
Morgan Hill,CA
February 10,2012

Accepted Answer

The answer of What is wrong with the following report...

Question 12

When an auditor tests a computerized accounting system,which of the following is true of the test data approach?

Accepted Answer

The test data approach involves the auditor processing test data through the client's computer programs under the auditor's control, in order to test the system's accuracy and completeness. Option B is not entirely true, as test data only needs to cover a reasonable range of possible conditions rather than all possible conditions. Option C is not true, as testing at year end does not necessarily provide assurance for the entire year. Option D is not necessary for all types of transactions and depends on the auditor's judgment of the level of risk associated with each transaction type.

Question 13

The advantages of generalized audit software include all of the following except:

Accepted Answer

The answer of The advantages of generalized audit software include...

Question 14

On the audit of Technology Unlimited,a leading manufacturer of computer chips,the external audit staff discovers that the internal audit staff has performed extensive evaluation and testing on the control environment.What should the external auditors do to determine the extent to which they may use the work of the internal audit staff?
 Can the external audit staff rely on the internal audit staff for evaluating and testing the control environment?

Accepted Answer

The answer of On the audit of Technology Unlimited,a leading...

Question 15

When testing a computerized accounting system,which of the following is false regarding the test data approach?

Accepted Answer

The test data approach does not require testing all possible valid and invalid conditions, only those that are relevant to the auditor's objectives.

Question 16

Trumpeter Corporation is a small publicly traded company that specializes in the restoration and sale of fine musical instruments.The audit committee is made up of a CEO from a technology company,a college accounting professor,and a local marketing executive.All are sufficiently independent from management.Members of the audit committee meet three times a year.Each time they meet,a different member,who chooses the topics to discuss,leads each meeting.The audit committee then sends the minutes of its meetings to the company's CFO.Solely from this information,what are your conclusions about this audit committee's role within the control environment?

Accepted Answer

The answer of Trumpeter Corporation is a small publicly traded...

Question 17

Examples of entity-level controls include

Accepted Answer

All of the above options (A, B, and C) are examples of entity-level controls. Entity-level controls are the overall policies and procedures that affect the entire organization, including the control environment, risk assessment process, monitoring of controls, and information and communication systems. Management's risk assessment process, controls to monitor results of operations, and the period-end financial reporting process are all examples of entity-level controls.

Question 18

You are an experienced audit senior.The new staff accountant on your audit team does not understand what a control deficiency is.Give him a definition of "control deficiency." Include examples of two types of control deficiencies.

Accepted Answer

The answer of You are an experienced audit senior.The new...

Question 19

Which of the following is false?

Accepted Answer

The absence of misstatements in financial statements does not necessarily mean that controls are effective. It is possible that the auditor did not detect all misstatements or that material misstatements did not occur during the audit period. Therefore, additional substantive procedures must always be performed regardless of the achieved level of control risk.

Question 20

Identify indicators of a material weakness in internal control over financial reporting.

Accepted Answer

The answer of Identify indicators of a material weakness in...

Quiz 7: Auditing Internal Control Over Financial Reporting