BAC 517 - Auditing in a CIS Environment

Name: _______________________________________________
Section/ Schedule: _____________________________________

PrelimQuiz #1

MULTIPLE CHOICE

1. Auditors are guided in their professional responsibility by the ten generally accepted auditing standards.
The auditing standards are divided into three classes. Which among the following statements is not true?
a. “The auditor must have independence of mental attitude.” is included in the general standards.
b. “The auditor must obtain sufficient, competent evidence.” is included in the field work standards.
c. “Audit work must be adequately planned.” is included in the general qualification standards.
d. “The report must identify any items that do not have adequate informative disclosures.” is not
included in the standards of fieldwork.

2. “The auditor should not assume that management is dishonest, but the possibility of dishonesty must be
considered”. This is an example of
a. unprofessional behavior.
b. an attitude of professional skepticism.
c. due diligence.
d. a rule in the Code of Professional Conduct.

3. Management assertions are

a. stated in the footnotes to the financial statements.
b. implied or expressed representations about the accounts in the financial statements.
c. explicitly expressed representations about the financial statements.
d. provided to the auditor in the Assertions Letter, but are not disclosed on the financial statements.

4. Which of the following statements is not correct?

a. It would be a violation of the completeness assertion if management would record a sale that did not
take place.
b. The completeness assertion deals with matters opposite from those of the existence/occurrence
assertion.
c. The completeness assertion is concerned with the possibility of omitting items from the financial
statements that should have been included.
d. The existence/occurrence assertion is concerned with inclusion of amount that should not have been.

5. Which of the following statements is not true? “The evidence gathering technique of inquiry
a. cannot be regarded as conclusive.”
b. requires the gathering of corroborative evidence.”
c. is the auditor’s principle method of evaluating the client’s internal control structure.”
d. does not provide evidence from an independent source.”

6. All of the following are components of audit risk except

a. control risk
b. legal risk
c. detection risk
d. inherent risk

JLA
 BAC 517 - Auditing in a CIS Environment

7. Control risk is
a. the probability that the auditor will render an unqualified opinion on financial statements
that are materially misstated
b. associated with the unique characteristics of the business or industry of the client
c. the likelihood that the control structure is flawed because controls are either absent or
inadequate to prevent or detect errors in the accounts
d. the risk that auditors are willing to take that errors not detected or prevented by the
control structure will also not be detected by the auditor

8. Inherent risk
a. exists because all control structures are flawed in some ways.
b. is the likelihood that material misstatements exist in the financial statements of the firm.
c. is associated with the unique characteristics of the business or industry of the client.
d. is the likelihood that the auditor will not find material misstatements.

9. Substantive tests include

a. examining the safety deposit box for stock certificates
b. reviewing systems documentation
c. completing questionnaires
d. observation

10. Tests of controls include

a. confirming accounts receivable
b. counting inventory
c. completing questionnaires
d. counting cash

11. A well-designed purchase order is an example of a

a. preventive control
b. detective control
c. corrective control
d. none of the above

12. The bank reconciliation uncovered a transposition error in the books. This is an example of a
a. preventive control
b. detective control
c. corrective control
d. none of the above

13. Which of the following suggests a weakness in the internal control environment?
a. the firm has an up-to-date organizational chart
b. monthly reports comparing actual performance to budget are distributed to managers
c. performance evaluations are prepared every three years
d. the audit committee meets quarterly with the external auditors

14. Which of the following indicates a strong internal control environment?

a. the internal audit group reports to the audit committee of the board of directors
b. there is no segregation of duties between organization functions
c. there are questions about the integrity of management
d. adverse business conditions exist in the industry

JLA
 BAC 517 - Auditing in a CIS Environment

15. According to COSO, an effective accounting system performs all of the following except
a. identifies and records all valid financial transactions
b. records financial transactions in the appropriate accounting period
c. separates the duties of data entry and report generation
d. records all financial transactions promptly

16. Which of the following is the best reason to separate duties in a manual system?
a. to avoid collusion between the programmer and the computer operator
b. to ensure that supervision is not required
c. to prevent the record keeper from authorizing transactions
d. to enable the firm to function more efficiently

17. Which of the following is not an internal control procedure?

a. authorization
b. management’s operating style
c. independent verification
d. accounting records

18. Internal control system has limitations. These include all of the following except
a. possibility of honest error
b. circumvention
c. management override
d. stability of systems

19. Which of the following is not part of the four broad objectives of internal control system?
a. promote organizational efficiency
b. ensure the accuracy and reliability of accounting records
c. comply with management’s policies and procedures
d. safeguard assets
e. none of the above

20. Which of the following is not a part of the internal control components described in the COSO
framework?
a. control environment
b. segregation of duties
c. risk assessment
d. control activities
e. monitoring

☺ ☺ ☺ Good luck and God bless ☺ ☺ ☺

JLA