Question 1

You are performing an audit on North South Natural Gas (NSNG).Alana,an NSNG employee,has responsibility for reconciling bank statements with the entity's cash accounts.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 2

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 the meeting.The audit committee then sends the minutes of its meetings to the entity'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 3

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

Accepted Answer

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

Question 4

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 5

Which of the following is false?

Accepted Answer

The absence of misstatements in financial statements is not considered convincing evidence that existing controls are effective. The audit of internal control is specifically designed to evaluate the effectiveness of internal controls over financial reporting. The auditor must perform substantive procedures regardless of the level of achieved control risk, as per auditing standards. The auditor is also required to evaluate the implications of the financial statement audit for the effectiveness of internal control over financial reporting, as per AS5.

Question 6

According to the COSO definition of safeguarding of assets

Accepted Answer

The COSO framework emphasizes that controls over financial reporting should ensure that any losses are accurately reflected in the financial statements, rather than guaranteeing that losses will not occur.

Question 7

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 8

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 processing test data (previously prepared data with known outcomes) through the entity's computer programs under the auditor's control. This allows the auditor to evaluate the accuracy and completeness of the system's processing. The other answer choices are incorrect:

B) Test data do not need to consist of all possible valid and invalid conditions, as the purpose of the approach is not to test every possible scenario, but to test enough data to provide reasonable assurance of the system's accuracy and completeness.

C) Testing a program at year end does not necessarily provide assurance that the entity's processing was accurate for the entire year, as there could have been errors or changes throughout the year that were not captured in the testing.

D) Several transactions of each type do not necessarily need to be tested, as the auditor can use their professional judgment to determine the amount and types of test data needed to provide reasonable assurance.

Question 9

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 the test data to consist of all possible valid and invalid conditions. Instead, it focuses on specific conditions of interest to the auditor, including both valid and invalid conditions to assess the system's handling of data.

Question 10

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 11

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 running predetermined data through a program to verify if the procedures contained within the program are functioning properly. Therefore, this method can provide assurances with respect to the procedures contained within the program. It does not provide assurances with respect to input data, machine capacity, or keypunching accuracy.

Question 12

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 13

AAA & Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting.AAA found a number of material weaknesses in the entity'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

An adverse report should be issued when material weaknesses are found in the entity's internal control over financial reporting, and the auditors did not have sufficient time to retest the controls after management claimed to have remediated them. This indicates that the auditors cannot conclude that the internal controls are effective as of the year-end.

Question 14

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 15

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 16

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 17

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

Accepted Answer

Generalized audit software typically analyzes data after it has been processed, not in real-time.

Question 18

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 19

Examples of entity-level controls include

Accepted Answer

All of the given examples are correct entity-level controls.

- Management's risk assessment process refers to the process where the management identifies, assesses and manages the risks that could affect the organization's objectives. This process helps to identify and prioritize the risk that requires management's attention and resources.
- Controls to monitor results of operations refer to the process of monitoring the results of the organization's operations, including the financial and non-financial performance, and taking corrective actions to address the issues.
- The period-end financial reporting process refers to the process of preparing the financial statements at the end of the accounting period in accordance with the applicable accounting standards and regulations. This process involves various internal controls to ensure accuracy and completeness of the financial information disclosed in the financial statements.

Entity-level controls are the foundation of an effective internal control system as they provide a framework for designing, implementing, and monitoring the other controls in an organization.

Question 20

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

Accepted Answer

Generalized audit software packages each have their own unique characteristics and capabilities that must be carefully considered before selecting and using them in a particular audit situation. They can be used on a variety of computer systems, not just online systems, but they do not necessarily enable the auditor to perform all manual test procedures less expensively.

Quiz 7: Auditing Internal Control Over Financial Reporting