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1.

The primary responsibility
for establishing and maintaining an internal control rests
with
a. The external auditors
b. The internal auditors
c. Management and those charged with governance
d. The controller or the treasurer

2.

The fundamental purpose of an internal control is to
a. Safeguard the resources of the organization
b. Provide reasonable assurance that the objectives of the organization are achieved
c. Encourage compliance with organization objectives
d. Ensure the accuracy, reliability, and timeliness of information

3.

Which of the following is not one of the three primary objectives of effective internal
control?
a. Reliability of financial reporting
b. Efficiency and effectiveness of operations
c. Compliance with laws and regulations
d. Assurance of elimination of business risk

4.

Which of the following internal control objectives would be most relevant to the audit?
a. Operational objective
b. Compliance objective
c. Financial reporting objective
d. Administrative control objective

5.

Which statement is correct concerning the relevance of various types of controls to a
financial audit?
a. An auditor may ordinarily ignore a consideration of controls when a substantive
audit approach is taken
b. Controls over the reliability of financial reporting are ordinarily most directly
relevant to an audit but other controls may also be relevant
c. Controls over safeguarding of assets and liabilities are of primary importance,
while controls over the reliability of financial reporting may also be relevant
d. All controls are ordinarily relevant to an audit.

6.

An auditor would most likely be concerned with internal control policies and procedures
that provide reasonable assurance about the
a. Efficiency of management’s decision-making process
b. Appropriate prices the entity should charge for its products
c. Methods of assigning production tasks to employees
d. Entity’s ability to process and summarize financial data

7.

In an audit of financial statements, an auditor’s primary consideration regarding an
internal control activity is whether the control
a. Reflects management’s philosophy and operating style
b. Affects management’s financial statement assertion
c. Provides adequate safeguards over access to assets
d. Enhances management’s decision-making process

8.

Two key concepts that underlie management’s design and implementation of internal control
are:
a. Costs and materiality
b. Absolute assurance and costs
c. Inherent limitations and reasonable assurance
d. Collusion and materiality

9.

Internal control can provide only reasonable assurance of achieving entity’s control
objectives. One factor limiting the likelihood of achieving those objectives is that
a. The auditor’s primary responsibility is the detection of fraud
b. The board of directors is active and independent
c. The cost of internal control should not exceed its benefits
d. Management monitors internal control

10. An act of two or more employees to steal assets and cover their theft by misstating the
accounting records would be referred to as:
a. Collusion
b. A material weakness
c. A control deficiency
d. A significant deficiency

11. c. Which of the following is an example of an inherent limitation in a system of internal accounting control? a. c. d. Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against fraud perpetrated by management. d. Fraud will be eliminated c. c. and compliance with procedures may deteriorate. b. Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion. Which of the following best describes an inherent limitation that should be recognized by an auditor when considering the potential effectiveness of an internal control structure? a. The internal control cannot be designed to provide reasonable assurance that: a. Procedures for handling large numbers of transactions are processed by electronic data processing equipment. One of the inherent limitations of accounting and internal control systems is the possibility that the procedures may become inadequate due to changes in conditions. b. Access to assets is permitted only in accordance with management’s authorization d. In the performance of most control procedures. . c. Management does not consider costs of the accounting and internal control systems. d. Properly maintained internal control reasonably ensures that collusion among employees cannot occur. Misunderstanding of instructions. c. Eliminates risks and potential loss to the organization 15. Transactions are executed in accordance with management’s authorization b. Cannot be circumvented by management b. or fatigue. All frauds will be detected b. When considering the effectiveness of a system of internal control. b. Most internal controls tend to be directed at non-routine transactions. d. 12. Inherent limitations do not include a. Inherent limitations in an internal control must be considered in evaluating its effectiveness in preventing and detecting errors and fraud. 14. The effectiveness of procedures depends on the segregation of employee duties. mistakes of judgment. Company personnel comply with applicable rules and regulations 16. b. personal carelessness. the auditor should recognize that inherent limitations do exist. Access to assets is permitted only in accordance with management’s authorization d. Transactions are executed in accordance with management’s authorization c. Which of the following statements about internal control is correct? a. The recorded accountability for assets is compared with the existing assets at reasonable intervals 17. Accounting and internal control systems provide management with conclusive evidence that objectives are reached. Incompatible functions performed by the same person. 18. Can reduce the cost of an external audit c. The benefits expected to be derived from effective internal control usually do not exceed the cost of such control. Can prevent collusion among employees d. Collusion among employees. Which of the following is correct about internal control? a. The establishment and maintenance of internal control are important responsibilities of the internal auditor. The cost-benefit relationship is a primary criterion that should be considered in designing internal control. distraction. Procedures are designed to assure the execution and recording of transactions in accordance with management’s authorization. b. Internal controls are not designed to provide reasonable assurance that: a. The competence and integrity of client personnel provide an environment conducive to control and provides assurance that effective control will be achieved. Management override of certain policies or procedures. d. Exceptionally strong internal control is enough for the auditor to eliminate substantive tests on a significant account balance. there are possibilities of errors arising from mistakes in judgment. An effective system of internal control a. 13.

Competency and dependability of the people using it 21. philosophy. The board of directors may not be aware of management’s attitude toward the control environment c. d. back up facilities. Information and communication d. 22. Hiring practices c. risk assessment. Integrity and ethical values b. Segregation of duties b. and natural laws. because their competence bears directly and importantly upon the a. Internal controls can never be regarded as completely effective. Safeguards over access to assets 24. Computer-based controls b. Inappropriate management override of internal control c. no matter how well designed and operated can only provide an entity with reasonable assurance about achieving the entity’s objectives. Control activities c. Incompatible functions 20. its effectiveness depends on the: a. Adequacy of the computer system b. Control risk b. the auditor considers the certain subcomponents of control environment and how they have been incorporated into the entity’s processes. When obtaining an understanding of an entity’s control environment. Commitment to competence c. Achievement of the objectives of internal control c. The likelihood of achievement is affected by limitations inherent to internal control. and monitoring c. In evaluating the design of the entity’s internal control environment. Even if company personnel could design an ideal system. The policies and procedures may be so ineffective that the auditor may assess control risk at a high level 25. Control environment d. Cost-benefit relationship of internal control b. Which of the following is not one of the components of an entity’s internal control? a. Which of the following best describes the interrelated components of internal control? a. Which is not a factor in providing for competent personnel? a. Performance evaluations 26. Training programs d. management. Collusion among employees b. and planning b. Subcomponents of control environment would not include a. It is important for the auditor to consider the competence of the audit employees. The auditor may believe that the policies and procedures are inappropriate for that particular entity b. Timing of the tests to be performed client’s . Management environment may establish appropriate policies and procedures but not act on them d. The control environment 23. Internal audit and management’s philosophy and operating style. Organizational structure.19. Ability of the internal audit staff to maintain it d. Organizational structure d. Risk assessment. The overall attitude and awareness of an entity’s board of directors concerning the importance of the internal control usually is reflected in its a. an auditor should concentrate on the substance of management’s policies and procedures rather than their form because a. Internal control. responsibility accounting. Basic to a proper control environment are the quality and integrity of personnel who must perform the prescribed procedures. control activities. Control environment. System of segregation of duties c. Comparison of recorded accountability with assets d. information and communication systems. Information and communications system 27. Human failures d. Proper implementation by management c. These limitations don not include: a.

Adequate separation of duties d. b. b. c. operation. The single most effective control procedure established to avoid allowing any person to be in a position to perpetrate and then conceal errors or fraud is a. Which of the following is not one of the subcomponents of the control environment? a.28. b. Quality and control system 29. An individual authorizing a transaction records it b. Management philosophy and operating style c. Which of the following would contribute most to the safeguarding of assets? a. record keeping. Establish an internal audit department d. Information and communication d. Control environment c. An individual recording a transaction not compare the accounting record of the asset with the asset itself 33. c. Human resource policies and practices d. It is permissible to allow an employee to open cash receipts and record those receipts. Accurate management job descriptions delineate specific duties. d. Which of the following subcomponents of the control environment define the existing lines of responsibility and authority? a. Blank stock of all purchase orders and sales invoices are pre-numbered 36. Employees who authorize transactions should not have custody of related assets c. Management philosophy and operating style most likely would have a significant influence on an entity’s control environment when a. Organizational structure c. Control and subsidiary accounts are reconciled on a regularly scheduled basis. An individual maintaining custody of an asset be entitled to access the accounting records for the asset d. The separation of the functional responsibilities custodianship. 35. Management integrity and ethical value 30. Organizational structure b. d. b. Management is dominated by one individual c. An individual authorizing a transaction maintains a custody of the asset that resulted from the transaction. Employees who authorize transactions should have recording responsibility for these transactions. Commitment to competence 31. Employees should not have temporary and permanent custody of assets b. Training programs are conducted to develop competence of newly hired personnel. 32. Management’s philosophy and operating style b. and authorization. d. The audit committee actively oversees the financial reporting process. Which of the following statements best describes the entity’s risk assessment process? . Access to computer facilities and records is limited to authorized personnel. Which of the following statements is most correct with respect to separation of duties? a. Control activities b. Which of the following components of an entity’s internal control structure includes the development of employee promotion and training policies? a. The internal auditor reports directly to management. A proper segregation of duties requires a. Yes Yes No No Processes transactions Monitors transactions Yes Yes Yes No Yes No No Yes 37. c. Accounting information system: Initiates transactions a. Require the bonding of personnel in positions that necessitate handling of cash and other universally desirable valuables 34. Require each employee to take a vacation each year c. d.

policies and procedures that reflect the overall attitudes of management b. An entity’s ongoing monitoring activities often include a. Physical controls c. The entity is involved in complex transactions c. The audit of the annual financial statements. payment. Control risk assessment in conjunction with quarterly reviews. Entity’s assessment of risks that internal control may fail to detect misstatements affecting the financial statements. recording. Which of the following deal with ongoing or periodic assessment of the quality of internal control by management? a. 40. and payment b. Which of the following is not one of the specific control activities that are relevant to financial statement audit? a. Proper segregation of functional responsibilities in an effective structure of internal control calls for separation of the functions of a. b. Which of the following may represent the biggest challenge smaller public companies face in implementing effective internal control? a. Authorization. Authorization. Financial reporting objectives have been established 46. Oversight activities d. Monitoring 42. Management activities 39. The actions. Which of the following best describes the purpose of control activities? a. Quality control activities b. Limited resources .a. c. c. Segregation of duties d. Which of the following activities would be least likely to strengthen a company’s internal control a. Management is closely involved in operations b. policies and procedures that help ensure that management directives are carried out referred to as the: Control environment Control activities Monitoring of controls Information system 41. d. The policies and procedures that help ensure that necessary actions are taken in order to achieve the entity’s objectives d. A small entity may use less formal means to ensure that internal control objectives are achieved. Reviewing the purchasing function c. Fixing responsibility for the performance of employee duties d. A lack of expertise b. Monitoring activities c. and reporting d. d. For example. and custody c. Entity’s process of identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks. execution. and recording 43. Carefully selecting and training employees 44. Entity’s assessment of audit risks affecting the financial statements Entity’s process of evaluating the risks of misstatements due to fraud. Maintaining insurance for fire and theft c. extensive accounting procedures. d. sophisticated accounting records. Performance reviews b. or formal controls are least likely to be needed if. The identification and analysis of risks relevant to the preparation of financial statements. Authorization. a. Reduced importance c. c. execution. Activities that deal with the ongoing assessment of the quality of internal control by management 45. Separating accounting from other financial operation b. b. Periodic audits by the audit committee b. The are a. Custody. 38. d. The entity is subject to legal or regulatory requirements also found in larger entities.

Provide a basis for suggestions to the client for improving the accounting system d. The auditor uses his understanding of accounting and internal control systems together with the inherent and control risks assessments to perform all of the following except a. The implementation and efficiency of the controls 54. b. For every audit b. Obtaining knowledge about whether the control is implemented can best be obtained by a. To report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements. Tracing transactions through the information system relevant to financial reporting. 49. b. For first time audits. Considering whether the control. Determining whether the control is operating effectively. To evaluate the effectiveness of the company’s internal controls over all relevant assertions in the financial statements c. c. or detecting and correcting. The auditors primary purpose in auditing the client’s system of internal control over financial reporting is: a. d. Assess control risk c. When obtaining an understanding of the accounting and internal control systems to plan the audit. checking the accuracy and reliability of accounting data. To efficiently conduct the audit of financial statements. Evaluating the design of the entity’s internal control would involve a. b. promoting operating efficiency. material misstatements. Auditing standards require the auditor to obtain an understanding of the client’s internal control structure a. Determining the consistency of application of internal control procedures 52. d. auditor’s consideration of a company’s internal control is. Evaluate the effectiveness of the accounting and control systems 55. An auditor should consider two key issues when obtaining an understanding of a client’s internal controls. Identify the types of misstatements that could occur b. c. When auditing a private company. d. The effectiveness and efficiency of the controls b. Limited available guidance Consideration of internal control 47. The a. Performing tests of control 53. d. Provide reasonable protection against client fraud and defalcations by client employees. Provide a method for safeguarding assets. individually or in combination with other controls. the auditor should obtain an understanding of internal control sufficient to: a. Sufficient to find any frauds which may exist d. Reading procedures manual c. Inquiry of client’s personnel b. Design appropriate audit procedures d. and encouraging adherence to prescribed managerial policies. the auditor should obtain knowledge about the . To prevent fraudulent financial statements from being issued to the public. Consider factors that affect the risk of material misstatements c. The frequency and effectiveness of the controls c. These issues are: a. b. Whenever it would be appropriate 50.d. Required under the Philippine Accountancy Act Required by PSA Required by the Code of Ethics Recommended by the SEC 48. The design and implementation of the controls d. is capable of effectively preventing. 51. Determining whether control exists and the entity is using it. c.

except Inquiries of appropriate management. d. In addition. Inquiries of appropriate personnel b. Tracing b. 59. job descriptions and flow charts Inspection of documents and records produced by the accounting and internal control system Observation of the entity’s activities and operations. After obtaining sufficient understanding of the entity’s accounting and internal control systems. The the the a. Performing analytical review procedures 61. b. NO Operation systems of accounting and internal YES NO NO YES 56. Audit risk b. b.Design of the accounting and internal control systems a. auditor’s understanding of the accounting and internal control systems significant to audit is ordinarily obtained through previous experience with the entity. Inherent risk d. including observation of the organization of computer operations. NO d. Detection risk 62. Narrative memorandum b. Prepare a flowchart control . Performing a walk-through d. Inspection of documents and record c. supervisory and other personnel at various organizational levels within the entity. The nature and extent of walk-through tests performed by the auditor are such that they alone would provide sufficient appropriate audit evidence to support a low assessment of control risk. Which of the following is not a medium that can normally be used by an auditor to record information concerning a client’s internal control policies and procedures? a. YES c. the auditor is said to be: a. When obtaining understanding of the entity’s internal control. c. auditor may perform the following procedures. It involves tracing a few transactions through the accounting systems b. c. the auditor should make a preliminary assessment of a. d. Control risk c. This procedure may form part of test of control. Testing controls 57. Reperformance of internal control procedures. c. Procedures manual d. YES b. Observation of the entity’s activities and operations d. Vouching c. management personnel and the nature of transaction processing. Which of the following statements is incorrect about walk-through tests? a. d. the auditor should obtain knowledge about the system’s Design a. Which of the following would an auditor least likely perform when obtaining understanding of the entity’s accounting and internal control systems? a. Questionnaire 63. This procedure is performed to determine whether the controls are being implemented. When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system. Flowchart c. together with reference to documentation. YES YES YES NO Implementation YES NO NO NO Operating Effectiveness YES NO NO YES 60. The auditor observes client employees while gaining an understanding of the internal control structure to a. 58.

Ascertain whether the opportunities to allow any person to both perpetrate and conceal fraud are minimized c. c. d. Assessing control risk and obtaining an understanding of an entity’s internal control structure may be performed concurrently b. Extent of test of details d. Determine the effectiveness of the control procedures d. The primary purpose of this task is to a. Documents that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing . Update information contained in the organization and procedure manuals Gain knowledge of the design and application of relevant policies. Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls b. conclusion reached as a result of assessing control risk is referred to as the: Assurance provided by internal control structure Determined level of acceptable detection risk Product of the understanding of internal control Assessed level of control risk 67. Documentation must include procedural write-ups. an auditor is required to document the basis for that assessment c. Detect fraud c. c. b. Determine whether the controls have been placed in operation 66. Control risk may be assessed sufficiently low to eliminate substantive testing for significant transaction classes d. timing and extent of substantive tests for financial statements assertions. Modify the initial assessments of inherent risk and preliminary judgments about materiality levels. Which of the following is a step in an auditor’s decision to assess control risk at a less than high level? a. 70. An auditor assesses control risk because it a. The a. When assessing control risk. Level of inherent risk 69. Perform tests of details of transactions and accounts balances to identify potential errors and fraud c. Is relevant to the auditor’s understanding of the control environment b. Indicates to the auditor where inherent risk may be the greatest d. d. When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective. No one particular form of documentation is necessary. No documentation is necessary although it is desirable d.b. An auditor uses the knowledge provided by the understanding of the internal control and the assessed level of the risk of material misstatement primarily to a. Provides assurance that the auditor’s materiality levels are appropriate c. Documentation must include flowcharts b. When control risk is at a high level. Which of the following statements concerning control risk is correct? a. Affects the level of detection risk that the auditor may accept 68. 71. Identify specific internal control policies and procedures that are likely to detect or prevent material misstatements d. the auditor may trace several transactions through the control process. the auditor would most likely increases the a. Determine the nature. Replace substantive tests b. Which of the following statements regarding auditor’s documentation of the client’s internal control structure is correct? a. c. d. Extent of tests of controls b. an auditor should not consider evidence obtained in prior audits about the operation of control procedures. and the extent of documentation may vary 65. In gaining an understanding of the internal control structure. Level of detection risk c. Determine whether procedures and records concerning the safeguarding of assets are reliable. and records relating to the control structure Determine the extent of compliance with quality control standards 64. b. procedures.

Based on a study and evaluation completed at an interim date. such as segregation of duties. Direct personal observation of the employee who applies control procedures b. Observation and inquiry c. Substantive tests 74. Analytical procedures c. The auditor most likely decided that . after obtaining an initial understanding of a client’s internal control. documentary evidence may not exist. Inquiries about. Further test those internal control procedures relating to processing and recording plant asset transactions 73. Preparation of a flowchart of duties performed and available personnel d. Confirmation and recomputation 78. the auditor should next a. The assessed level of control risk can be reduced b. Tests of controls c. Calculation d. Establish the physical existence of current year additions c. For certain controls. Substantive tests b. To obtain evidential matter about control risk. After obtaining an understanding of the internal control structure and assessing control risk. timing and extent of the a. Reperformance and corroboration b. Inquiry b. the auditor obtains a reasonable degree of assurance that the internal control procedures are in use and operating as planned. an auditor selects tests from a variety of techniques including a.72. Necessary controls are absent c. Test of controls c. Compliance tests d. An auditor would most likely test the procedures by a. Transaction tests d. Reperformace of internal control procedures b. Incompatible function exist d. Compliance tests were not performed by the internal auditor during the remaining period b. An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature. an auditor decided to perform tests of controls. Confirmation 77. Making inquiries of co-workers about the employee who applies control procedures c. Before relying on the system of internal control. Attribute tests b. Tests of trends and ratios 81. Inspection of third-party documents containing the initials of who applied control procedures 79. and observation of. Inspection of documentary support for transactions evidencing authorization d. Control testing is performed in order to determine whether or not a. internal control which leave no audit trail c. c. Material peso error exist 75. Inquiries and observations lead the auditor to believe that conditions have changed 80. The auditor obtains this assurance by performing planned a. the auditor concludes that no significant internal accounting control weaknesses exist. the auditor wishes to further reduce the assessed level of control risk relating to plant asset transactions. Audit evidence concerning proper segregation of duties normally is best obtained by: a. The internal accounting control system provides a basis for reliance in reducing the extent of substantive testing. Tests of controls do not include a. Analytical procedures involving comparison of operating expenses with budgeted amounts 76. The auditor used non-statistical sampling during the interim period compliance testing d. Inspection and vouching d. Complete the plant asset section of the internal accounting control questionnaire d. The records and procedures would most likely be tested again at year-end if a. Make extensive substantive test of plant asset balances b. If.

Set detection risk at a higher level than would be set under conditions of weak internal control d. b. YES b. b. the auditor should document his Understanding of internal control components a. c. c. c. YES c. The a. d. Determine the control policies and procedures that should prevent or detect errors and fraud. Under these circumstances. Reduce the extent of tests of controls in areas where internal control is strong d. b. How they were applied b. NO Conclusion that control risk is at a high level YES YES NO YES Basis for concluding that control risk is at a high level YES NO NO NO 89. Reduce the extent of both substantive tests and tests of controls in areas where internal control is strong 85. the auditor would most likely a. Increase the extent of tests of controls and substantive tests in areas where internal control is strong b. Perform further control tests to the extent outlined in the audit program. The a. Not increase the extent of planned substantive tests c. because they vary from client to client 87. Perform all tests of controls to the extent outlined in the pre-planned audit program 84. When control risk is assessed at a high level. It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests Additional evidence to support further reduction in control risk is not available An increase in the assessed level of control risk is justified for certain financial statement assertions There were many internal control weaknesses that could allow errors to enter the accounting system 82.a. d. b. the auditor considers all of the following except a. By whom they were applied d. an auditor has concluded that the policies and procedures are well designed and functioning as intended. After considering internal control. an auditor might decide to a. d. primary emphasis by auditors is on controls over Classes of transactions Account balances Both A and B. Why they were applied 88. auditor would most likely assess control risk at a high level when It would be efficient to perform test of control The entity’s accounting and internal control systems are not reliable The auditor wishes to rely on the entity’s accounting and internal control systems The auditor wants to restrict substantive tests 86. YES Basis for assessing control risk at less than high level YES . 83. an auditor has concluded that the system is well designed and is functioning as anticipated. because they are equally important Both A and B. Increase the extent of anticipated analytical procedures d. the auditor should document his Understanding of internal control components a. YES d. Set detection risk at a lower level than would be set under conditions of weak internal control. When control risk is assessed at less than high level. When obtaining audit evidence about the effective operation of internal controls. Under these circumstances. the auditor would most likely a. Cease to perform further substantive tests b. After studying and evaluating a client’s existing internal control. After considering a client’s internal control. The consistency with which they were applied during the period c. c. Increase the extent of substantive tests in areas where internal control is weak c.

The auditor should perform tests of controls c. The auditor need not document his understanding of internal control . Types of potential fraud c. the auditor cannot rely on the results of such test without considering the need to obtain further audit evidence relating to the remainder of the period. Control environment factors d. The auditor may decide to perform some tests of control during an interim visit in advance of the period end. Inspection of documents 96. Control risks should be assessed in terms of a. an auditor desires to seek a further reduction in the assessed level of control risk. c. Preparing flowcharts b. Financial statement assertions 93. Monthly b. The auditor should document his conclusion that control risks is at a high level d. Additional audit evidence sufficient to support a further reduction is likely to be available 94. YES NO NO NO YES NO 90. c. d. Document inspection and reconciliation 97. Test counts and cutoff procedures c.b. This assurance is most likely obtained in part by a. The auditor should document the basis for his assessment b. Each audit c. Before assessing control risk at a level lower than the maximum. the auditor obtains reasonable assurance that controls are in use and effectively. Which of the following is correct when the auditor assess control risk at a high level? a. Substantive procedures d. the auditor would consider whether a. An auditor generally tests the segregation of duties related to inventory by a. The auditor will perform tests of controls when controls are initially assessed as: a. It would be efficient to obtain an understanding of the entity’s information system d. at least every third audit 95. Risk assessment procedures 92. at least every second audit d. Analytical procedures and invoice recomputation d. The results of substantive tests 98. However. The length of remaining period c. Performing substantive tests. d. Whether any changes have occurred in the accounting and internal control systems during the remaining period d. The results of the interim tests b. Specific controls b. Analytical procedures c. The entity’s controls pertain to any financial statements assertions c. Based on the requirement of PSA 330. Personal inquiry and observation b. c. b. Analyzing tests of threads and ratios d. how frequently must an auditor test operating effectiveness of controls that appear to functions as they have in past years and on which the auditor wishes to rely in the current year? a. Which of the following may not be required on a particular audit of a company? a. Tests of controls b. The entity’s controls have been implemented b. Factors to be considered in deciding whether to perform tests of controls for the remaining period would not include a. At this time. After assessing control risk. Low YES YES NO YES Moderate YES NO YES YES High YES YES NO NO 91.

Members of the management who are responsible for the related area of the company c. Evaluate whether controls operated effectively 101. Inspect the design of documents 103. A consideration of internal control is not necessarily made during an audit engagement c. Make inquiries of appropriate client personnel b. d. the absence of a key control: Is no longer a concern because there is no longer a significant deficiency or material weakness Is still a major concern to the auditor Could cause a material loss. Examine documents. A consideration of internal control made during an audit is usually not sufficient to express an opinion on an entity’s controls because a. Outside consultants who issue a special-purpose report on internal control structure 106. When a compensating control exists. The SEC b.99. In general. Reperform client procedures d. Search for significant deficiencies in the operation of the internal control b. The PICPA 104. c. so it must be tested using substantive procedures Is magnified and must be removed from the sampling process and examined in its entirety 105. an auditor is not obligated to a. At a high level b. Tests of controls are assessment of control risk a. An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls. a. An independent auditor during tests of controls b. Weaknesses in the system may go unnoticed during the audit engagement b. b. Controls can change each year 107. At less than high level c. Only those controls on which an auditor intends to rely are reviewed. c. a material weakness in internal control may be defined as a condition in which material errors or irregularities may occur and not be detected within a timely period by a. Determine whether the control activities relevant to audit planning have been implemented . Which of the following would generally NOT be used? a. d. tested and evaluated d. b. Detect material misstatements in the account balances of the financial statements d. The objective of tests of details of transactions performed as tests of controls is to a. Evaluating the effectiveness of the control would not be efficient YES NO NO YES YES YES NO NO 100. Determine whether controls have been placed in operation c. Audit committee of the company’s board of directors d. and reports c. During the consideration of internal control in a financial statement audit. records. At the maximum level designed to obtain evidence to support the auditor’s 102. Management when reviewing interim financial statements and reconciling account balances c. Employees in the normal course of performing their assigned functions d. Understand the internal control and the information system c. The auditor ordinarily assesses control risk at a high level for some or all assertions when The entity’s internal control is effective a. Monitor the design and use of entity documents such as prenumbered shipping form b. Material weaknesses in internal control of a public company must be reported in writing to which of the following? a. At zero level d.

d. . d. b. a. Perform procedures to understand the design of internal control The management letter is used To allow management to corroborate oral representations to the auditor To confirm the terms of the audit engagement To document the auditor’s consideration of internal controls To make recommendations to the client based on observations made during the audit. c. 108.