CONS) SCAT (O Multiple Choice Questions Nature of intemal control 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 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. geliability of financial reporting i b. efficiency and effectiveness of operations - c compliarice with laws and regulations 4 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 = Financial reporting objective d. Administrative control objective 213conceming the relevance of various 4, f be 1 Which statement IS correct rols to a financial audit? ordinarily ignore audit approach is taken. financial reporting are ordingy) t but other controls may alse L of contr An auditor may a substantive Is over the reliability of ectly relevant to an audi a consideration of Contry) i) a when b. Contro! most dir relevant. Controls over safeguarding of as primary importance, while controls financial reporting may also be relevant. d. All controls are ordinarily relevant to an audit. sets and liabilities are , over the reliability , ° ikely be concerned with internal contro] rovide reasonable assurance about the nt’s decision-making process tity should charge for its products luction tasks to employees nd summarize financial data An auditor would most 1 policies and procedures that p a. Efficiency of manageme b. Appropriate prices the en| c. + Methods of assigning prod d— Entity’s ability to process a 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 assertions c. Provides adequate safeguards over access to assets d. Enhances management's decision-making processes Two key concepts that underlie management's design and implementatior a. costs and materiality absolute assurance and costs. inherent limitations and reasonable assurance. collusion and materiality. n of internal control are: b x ; d L : ; Internal contr obi provide only reasonable assurance of achiev" ity’s contre ectiv , ! y al objectives. One factor limiting the likelihood achieving those objectives is that 214d. The auditor’s primary responsibility is the detection of fraud The board of directors is active and independent The cost of internal control should not exceed its benefits Management monitors internal control \n act of two or more employees to steal assets and cover their theft by a b. cr d misstating the accounting records would be referred to as: collusion. a material weakness. a control deficiency. a significant deficiency. Inherent limitations in an internal control must be considered in evaluating its effectiveness in preventing and detecting errors and fraud. Inherent limitations do not include a. & c d. Misunderstanding of instructions, mistakes of judgment, personal carelessness, distraction, or fatigue. Incompatible functions performed by the same person. Collusion among employees. Management override of certain policies or procedures. 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? at Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion. The competence and integrity of client personnel provide an environment conducive to control and provides assurance that effective control will be achieved. Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against fraud perpetrated by management ‘The benefits expected to be derived from effective internal control usually do not exceed the cost of such control. 21513. 15. 16. « SI n stiveness of a system of internal ag ring the effec When conside control, the ; exist. Which of the fol " ina system of internal accounting control: ctiveness of procedures depends on the Segrepation iuditor should recognize that inherent limit, aud z ns 4 lowing is an example of an inherent limites a The e employee duties. b. Procedures are designed to assure the execution and rec of transactions in accordance with management's authorizay,,, ce In the performance of most control procedures, there , possibilities of errors arising from mistakes in judgment d. Procedures for handling large numbers of transactions processed by electronic data processing equipment An effective system of internal control a. Cannot be circumvented by management bs Can reduce the cost of an external audit c. Can prevent collusion among employees d. Eliminates risks and potential loss to the organization Internal controls are not designed to provide reasonable assurance that: a. all frauds will be detected. b. transactions are executed in accordance with authorization. C. access to assets is permitted only in accordance with management's authorization, d. company _ personnel comply with regulations. management's applicable rules and The internal control cannot be designed to sonable . rovide sonabk assurance that 8 provide rea a. Transactions are execut » authorization, b. Fraud will be climinated 216Access 10 assets is) permitted only in accordance with management's authorization. } The recorded accountability for assets is compared with the existing assets at reasonable intervals Which of the following statements about internal control is correct? . Properly maintained internal control reasonably ensures that collusion among employees cannot occur. : b. The establishment and maintenance of internal control are important responsibilities of the internal auditor. ceptionally strong internal control is enough for the auditor to eliminate substantive tests on a significant account balance. d. The cost-benefit relationship is a primary criterion that should be considered in designing internal control Which of the following is correct about internal control? a. Accounting and internal control systems provide management with conclusive evidence that objectives are reached. b’ 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, and compliance with procedures may deteriorate. c. Most internal controls tend to be directed at non-routine transactions. d. Management does not consider costs of the accounting and internal control systems. Internal control, no matter how well designed and operated, can only provide: an entity with reasonable assurance about achieving the ectives. The likelihood of achievement is affected by entity’s obj t to internal control. These limitations do not limitations inherent include: a. Collusion among empl b. Inappropriate management override of internal control. c. Human failures. d- Incompatible functions. ees 21720. be regarded as completely effective EB id design an ideal system, its effectivens, trols can never Internal con! personnel coul if company e the: en of the computer system. . b. proper implementation by management. — a ability of the internal audit staff to maintain it 4 competency and dependability of the people using it. Components of Intemal Control 21. 22. 23. Which of the following best describes the interrelated components of internal control? a. Organizational structure, management, philosophy, — and planning b. Control. environment, risk assessment, control activities information and communication systems, and monitoring c. _ Risk assessment, backup facilities, responsibility accounting, and natural laws d. Internal audit and management’s philosophy and operating style. Which of the following is not one of the components of an entity’s internal control? ae Control risk b. Control activities c. Information and communication d. The control environment The overall attitude and awareness of an entity’s board of directors concerning the importance of the internal control usual, ly is reflected in its 7 a. Computer-based controls b. System of segregation of duties 21826. 27. ce Control environment d. Safeguards ove ACCESS LO assets When obtaining an understanding of an entity’s control environment, an auditor should concentmte on the substance of management’s policies and procedures rather than their form because a. The auditor may believe that the policies and procedures are inappropriate for that particular entity The board of directors may not be aware of management’s attitude toward the control environment c. Management may establish appropriate policies and procedures but not act on them d. The policies and Procedures may be so ineffective that the auditor may assess control tisk at a high level Basic to a proper control environment are the quality and integrity of personnel who must perform the prescribed procedures. Which is not a factor in providing for competent personnel? a. Segregation of duties b Hiring practices c. Training programs d. Performance evaluations In evaluating the design of the entity’s internal control environment, the auditor considers the certain subcomponents of control environment and how they have been incorporated into the entit’s processes. Subcomponents of control environment would not include Integrity and ethical values b. Commitment to competence c. Organizational structure d. Information and communications systems » It is important for the auditor to consider the competence of the audit client’s employees, because their competence bears directly and he importantly upon the 21929 Cost benefit relationship of internal control 1 ‘ A nal c \chievement of the objectives of intern al contro] ‘ Comparison of recorded accountability with assets d Timing of the tests to be performed Which of the following components of an enuty’s intern, opment of empl al structure includes the devel Oyee Promotion training policies? a. Control activities b. Control environment c. Information and communication d Quality control system Which of the following subcomponents of the control define the exis €NVitonm.. ting lines of responsibility and authority? a Organizational Structure b. Management philosophy and Operating style ¢ Human resource Policies and practices d. Management integrity and ethical values Which of the following is not one of the subcomponents of te control environment? a. management's philosophy Organizational structure adequate Separation of duties commitment to competence b. & d. and Operating style Management phil losophy and peratin, significant influe ‘nce on an entit g style most likely would have: he internal ntrol environment when auditor Teports. directly to Management, b. Management is dominated by one individual, c Accurate Management job descriptions delineate specific duties d The audit committee actively oversees the financial reportits Process 220\ proper segremation of duties requires an individual authorizing a transaction records it pb. an individual authorizing 4 transaction maintains a custody of the asset that resulted from the transaction F an individual Maintaining custody of an asset be entitled to access the accounting records for the dan individual recording accounting record of the asset a transaction not compare the ‘asset with the asset itself 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 as The separation of the functional responsibilities custodianship, record keeping, Operations, and authorization. b. — Require each employee to take a vacation each year. c. Establish an internal audit department. d. Require the bonding of personnel in positions that necessitate handling of cash and other universally desirable valuables. Which of the following statements is most correct with respect to separation of duties? a, Employees should not have temporary and permanent custody of assets. b. Employees who authorize transactions should not have custody of related assets. c. — Itis permissible to allow an employee to open cash receipts and record those receipts. d. Employees who authorize transactions should have recording responsibility for these transactions, Which of the following would contribute most to the safeguarding of assets? a Access to computer facilities and records is limited to authorized personnel. b. ‘Training programs are conducted to develop competence of newly hired personnel 238. 39. a b. nts are reconciled on a Tepul, th Control and subsidiary acco ied basis schedu . of all purchase Blank stock prenumbered orders and sales invoices a Acc > information system: : / ‘ ee berierr "roasts transactions Monitors trata Yes Yes es Yes Yes No No Yes No No No Yes d. Which of the following statements assessment process? A best describes the entity’s rig of identifying business risks relevant 1, Entity’s process nes ; jectives and deciding about actions tg financial reporting obj address those tisks. ; Entity’s assessment of audit risks affecting the finangy statements. Entity’s process of evaluating the risks of misstatements due to fraud. , Entity’s assessment of risks that internal control may fail to detect misstatements affecting the financial statements. Which of the following deal with ongoing or periodic assessment of the quality of internal control by management? a. b. c. d Quality control activities Monitoring activities Oversight activities Management activities An entity’s ongoing monitoring activities often include a. he c d Periodic audits by the audit committee. Reviewing the purchasing function. The audit of the annual financial statements. Control risk assessment in conjunction with quarterly reviews 222The polices and procedures that help ensure that management 40. directives are carried out are referred to as the: a. Control environment be Control activities ¢, _ Monitoring of controls g, _ Information system yy, Which of the following is not one of the specific control activities that are relevant to financial statement audit? a, Performance reviews b. Physical controls c. Segregation of duties _d° Monitoring 42, Proper segregation of functional responsibilities in an effective structure of internal control calls for separation of the functions of. , Authorization, execution, and payment _b- Authorization, recording, and custody, c. Custody, execution, and reporting d. Authorization, payment, and recording 43, Which of the following activities would be least likely to strengthen a company's internal control? a. separating accounting from other financial operations b. maintaining insurance for fire and theft c. fixing responsibility for the performance of employee duties d. carefully selecting and training employees 44, Which of the following best describes the purpose of control activities? a. the actions, policies and procedures that reflect the overall attitudes of management b. the identification and analysis of tisks relevant to the preparation of financial statements 223control objectives the policies and procedures that help ensure that necessary Jer to achieve the entity's objectives actions are taken in ore sment of the quality activities that deal with the ongoing as internal control by management 5. A small entity may use less formal means to ensure that inter, re achieved. For example, extensive accoung, i, procedures, sophisticated accounting records, or formal controls an least likely to be needed if d. Management is closely involved in operations The entity is involved in complex transactions The entity is subject to legal or regulatory requirements aj, found in larger entities. Financial reporting objectives have been established 46. Which of the following may represent the biggest challenge smalle, public companies face in implementing effective internal control? a. b. ge d. a lack of expertise reduced importance limited resources limited available guidance Consideration of internal control 47. The auditor's consideration of a company's internal control is: a. a c. d. required undet the Philippine Accountancy Act. required by PSA. required by the Code of Ethics. recommended by the SEC. 48. The auditors primary purpose in auditing the client's system of internal control over financial reporting is: a. b. to prevent fraudulent financial statements from being issued t0 the public. , to evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements.d. 49. to report to Management that the internal controls are effective in preventing misstatements from appearing On the financial statements. to efficiently conduct the audit of financial statements. \uditing standards require the auditor to obtain an understanding of the client’s internal control structure a b. cs d. 50, When auditing a private company, the auditor should obtain For every audit. For first time audi Sufficient to find any frauds which may exist. Whenever it would be appropriate : an understanding of internal control sufficient to: ® provide reasonable protection against client fraud and defalcations by client employees. assess control risk. provide a basis for suggestions to the client for improving the accounting system. provide a method for safeguarding assets, checking the accuracy and reliability of accounting data, promoting operational efficiency, and encouraging adherence to prescribed managerial policies. 51, Evaluating the design of the entity’s internal control would involve Le b. G Considering whether the control, individually or in combination with other controls, is capable of effectively preventing, or detecting and correcting, material misstatements. Determining whether control exists and the entity is using it. Determining whether the control is operating effectively Determining the consistency of application of internal control procedures.on 54. wn oT about whether the control is implementeg & Obtaining knowledge best be obtained by a, Inquiry of client’s personnel b. Reading procedures manual ¢. Tracing transactions through the information system teley,.. financial reporting, d. Performing tests of control. An auditor should consider two key issues when obtaining . understanding of a client's internal controls. These issues are; a, the effectiveness and efficiency of the controls. b. the frequency and effectiveness of the controls. the design and implementation of the controls. d. the implementation and efficiency of the controls. The auditor uses his understanding of accounting and inter, control systems together with the inherent and control ry assessments to perform all of the following except a. _ Identify the types of misstatements that could occur b. Consider factors that affect the tisk of material misstatements c. Design appropriate audit procedures de Evaluate the effectiveness of the accounting and control systens When obtaining an understanding of the accounting and intem: control systems to plan the audit, the auditor should obits knowledge about the Design of the accounting and Operation of accounting and internal control systems internal control systems @ nes YES b. YES NO d No NO . YES 226When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be: a tracing. pb, vouching. 6 performing a walk-through. testing controls. Which of the following statements is incorrect about walk-through tests? a. It involves tracing a few transactions through the accounting systems. b. This procedure may form part of tests of control. 4 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. d. This procedure is performed to determine whether the controls are being implemented. 58. The auditor’s understanding of the accounting and internal control systems significant to the audit is ordinarily obtained through previous experience with the entity. In addition, the auditor may perform the following procedures, except a. inquiries of appropriate management, supervisory and other personnel at various organizational levels within the entity, together with reference to documentation, job descriptions and flow charts b. inspection of documents and records produced by the accounting and internal control system c. observation of the entity’s activities and operations, including observation of the organization of computer operations, management personnel and the nature of transaction processing. reperformance of internal control procedures. 22750 60) ol. 62. 63. When obruning understanding of the entity’s internal Contry Mt ami iuditor should obtain knowledge about the system Design Implementation Ope rating ffectiveng, yrs YES ; YES NO NO NO NO YES d Which of the following would an auditor least likely perform Whe anding of the entity’s accounting and: jn, obtaining unders control systems? a, Inquities of appropriate personnel b. Inspection of documents and record Observation f the entity’s activities and operations Performing analytical review procedures After obtaining sufficient understanding of the entity’s account: and internal control systems, the auditor should make a preliming assessment of a Audit risk c. Inherent risk > Control risk d. Detection risk Which of the following is not a medium that can normally be usedb an auditor to record information concerning a client's internal contn policies and procedures? a. Narrative memorandum_ © Procedures manual b. Flowchart Questionnaire The auditor observes client employees while gaining an understand of the internal control structure to a. Prepare a flowchart b. Update information contained in the organization # procedure manuals 228Gain knowledge of © ————— i of the design and application of relevant : ; ar policies, procedures, and records relating to the control structure gq, Determine the extent of i x compliance with quality standards 4 — Vhich of the fe ‘ing state 4. Which : 1 : following statements regarding auditor’s documentation of the client’s internal control structure is correct? a, Documentation must include flow charts. b. Documentation must include procedural write-ups 6 No documentation is necessary although it is desirable. ad Noone particular form of documentation is necessary, and the extent of documentation may vary. 65, In gaining an understanding of the internal control structure, the auditor may trace several transactions through the control process. The primary purpose of this task is to a. _ Replace substantive tests b. Detect fraud veness of the control procedures c. Determine the effecti © Determine whether the controls have been placed in o} ached a as result of assessing control tis peration is referred 66, The conclusion re toas the: a Assurance provided by internal control structure. b. Determined level of acceptable detection risk c. Product of the understanding of internal control. | of control risk ® Assessed leve s control risk because it 67, An auditor assesse ; a Is relevant to the auditor's understanding of the control environment b. Provides assurance that the auditor's materiality levels are appropnatc c Indicates to the auditor where inherent risk may be the greatest © Affects the Jevel of detection risk that the auditor may accept ‘ ¥ 229 i68. When an auditor increases the ass certain. control auditor would most likely increas a b. © d ssed level of control risk deca Us jetermined to be ineffective .° activities were ¢ A s the Extent of tests of controls Level of detection risk. Extent of tests of details. Level of inherent tisk. 69, An auditor uses the knowledge provided by the understanding F internal control and the assessed level of the risk of mate, misstatement primarily to a. b. Determine whether procedures and records concerning 1}, safeguarding of assets are reliable. Ascertain whether the opportunities to allow any person ty both perpetrate and conceal fraud are minimized. Modify the initial assessments of inherent risk and preliminay, judgments about materiality levels. Determine the natute, timing and extent of substantive tests for financial statement assertions. 70, Which of the following statements concerning control risk is correct? Assessing control risk and obtaining an understanding of an entity’s internal control structure may be _ performed concurrently When control risk is at a high level, an auditor is required to document the basis for that assessment Control risk may be assessed sufficiently low to elimimt substantive testing for significant transaction classes When assessing control risk an auditor should not consic! evidence obtained in prior audits about the operation of conto. procedures. 230which of the following is a step in-an auditor's decision 10 assess control risk at less than high level? \pply analy e procedures to both financial data and nontinancial information to detect conditions that may indicate weak controls pb, Perform tests of details of transactions and accounts balances to identity potential errors and fraud Identify specific internal control policies and procedures that atements are likely to detect or prevent material miss d. Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing -2, If, after obtaining an initial understanding of a client's internal control, the auditor wishes to further reduce the assessed level of control risk relating to plant asset tmnsactions, the auditor should next a. _ Make extensive substantive tests of plant asset balances. b. _ Establish the physical existence of current year additions. c. Complete the plant asset section of the internal accounting control questionnaire. Further test those internal control procedures relating to P iS processing and recording plant asset transactions. 73, 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, timing, and extent of the a. Attribute tests c. Compliance tests b. Tests of controls Substantive tests 74. Control testing is performed in order to determine whether or not @ The assessed level of control risk can be reduced b. Necessary controls are absent c Incompatible functions exist d. Material peso errors exist sf76 g Tests of controls do not include: a b. oO Repertormance of internal control procedures Inquiries about, and observation of, internal controls y hich leave no audit trail. Inspection of documentary support for transactions ey ideng, authorization Analytical procedures involving comparison of operating with budgeted amounts. expen: To obtain evidential matter about control risk, an auditor selects tes from a variety of techniques including (ea d. Inquiry Analytical procedures Calculation Confirmation For certain controls, such as segregation of duties, documents, evidence may not exist. An auditor would most likely test 1); procedures by a. & c d. Reperformance and corroboration Observation and inquiry Inspection and vouching Confirmation and recomputation Audit evidence concerning proper segregation of duties normally best obtained by: direct personal observation of the employee who applies control procedures. making inquiries of co-workers about the employee who applies control procedures. preparation of a flowchart of duties performed and available personnel. inspection of third-party documents containing the initials o who applied control procedures. 232a study and evaluation completed at an interim date, the internal accounting, control t likely be ed on concludes that no. significant The records and procedures would mos Bas guditor weakne ses exist. tested again at year-end if Compliance tests were not performed by during the remaining period The internal accounting control system provid in reducing the extent of substantive testing ig the interim “0. the internal auditor a les a basis for reliance The auditor used non-statistical sampling dunn; period compliance testing Inquiries and observations lead the audito: conditions have changed r to believe that Before relying on the system of intemal control, the auditor obtains a reasonable degree of assurance that the internal control procedures are in use and operating as planned. The auditor obtains this assurance by performing planned Substantive tests c. Transaction tests d. Tests of trends and ratios 80. a. & Tests of controls al control structure and 81. After obtaining an understanding of the intern: form tests of controls. assessing control tisk, an auditor decided to pe! The auditor most likely decided that & It would be efficient to perform tests of controls that wo} result ina reduction in planned substantive tests b. Additional evidence to support further reduction in control risk is not available ase in the assessed level of control risk is justified for ssertions ere may internal control weaknesses that could allow anting system uld c. An incre certain financial statement a d. There w errors to enter the accou82. 83. 84. After studying and evaluating auditor ha a client's existing internal Contre) is concluded that the policies and_ procedures ate. lesigned and functioning as intended. Under these Circumstanc., desigi a r , auditor a b. O d. would most likely Perform further control tests to the extent outlined in the 7 program. d Determine the control policies and procedures that shoy prevent or detect errors and fraud. Set detection risk at a higher level than’ would be set Unde conditions of weak internal control. . Set detection risk at a lower level than would be set unde conditions of weak internal control. After considering a client’s internal control, an auditor has Conclude that the system is well designed and is functioning as anticipate, Under these circumstances, the auditor would most likely a. @ c. d. Cease to perform further substantive tests Not increase the extent of planned substantive tests Increase the extent of anticipated analytical procedures Perform all tests of controls to the extent outlined in the pre- planned audit program After considering internal control, an auditor might decide to a. Increase the extent of tests of controls and substantive tests in areas where internal control is strong Increase the extent of substantive tests in areas where internal control is weak Reduce the extent of tests of controls in areas where intemal” control is strong Reduce the extent of both substantive tests and tests of contro in areas where internal control is strong The auditor would most likely assess control risk at a high level whe" a, b It would be efficient to perform test of control The entity’s accounting and internal control systems ate ™ reliable 234The auditor wishes to rely on the entity’s accounting anc internal control systems oO The auditor wants to restrict substantive tests ‘The pamary emphasis by auditors is on controls over So. fr classes of transactions account balances c, _ both A and B, because they are equally important d. both A and B, because they vary from client to client g, When obtaining audit evidence about the effective operation of internal controls, the auditor considers all of the following except a How they were applied b. The consistency with which they were applied during the period c By whom they were applied ® Why they were applied gg, When control risk is assessed at a high level, the auditor should document his Understanding of Conclusion that Basis for concluding that internal control control risk isata control nsk is ata high components high level Jevel a. Yes Yes Yes 6 Yes Yes No c Yes No No d. No Yes No 89. When control risk 1s assessed at less than high level, the auditor should document his Understanding of internal control Basis for assessing control risk components at less than high kvel @ Yes Yes 5 Yes No 235© No Yes d, No No 90. The auditor will perform tests of controls when controls ate assessed as: Low Moderate High Yes Yes Yes Yes No Yes No Yes No Yes No @rre e g 91. Which of the following may company? (7 Tests of controls, b. Analytical procedures, c. Substantive procedures. d. Risk assessment procedures, Y not be required on a particular audit o¢. 92. Control tisk should be assessed in terms of a. Specific controls. b. Types of potential fraud. c. Control environment factors. & Financial statement assertions 93. After assessing control risk, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whether a. The entity’s controls have been implemented. b. The entity's controls pertain to any financial statement assertions. c. It would be efficient to obtain an understanding of the entity’ information system. 9 Additional audit evidence sufficient to support a furthe reduction is likely to be available. 23695 %. 97 . the requireme ( 1 pased on Juirement of PSA 330, | . , how frequently mus , tan est oper: offe 7 auditor aon effectiveness of controls that appe: sons as they hav y aaa funcnion AVE IN past years and ¢ J and on which the a torely in the current year? auditor wishes ; Monthly. b tach audit. P \t least every second audit 6 At least every third audit. Before assessing control risk at a level lower than the maximum, the auditor obtains reasonable assurance that controls are in use ‘and operating effectively. This assurance is most likely obtained in part by a. _ Preparing flowcharts. : : b. Performing substantive tests. c. _ Analyzing tests of threads and ratios. B Inspection of documents An auditor generally tests the segregation of duties related to inventory by Personal inquiry and observation. Test counts and cutoff procedures. Gl Analytical procedures and invoice recomputation. d. Document inspection and reconciliation. The auditor may decide to perform some tests of control during an interim visit in advance of the period end. However, 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. Factors to be considered in deciding whether to perform tests of controls for the remaining period would not include "The results of the interim tests. The length of remaining period. Whether any changes have occurred in the accounting and control systems during the remaining period. a. b internal @D The results of substantive tests 237Og 99. 100. Which of the following is correet when the auditor assesseg Cony, risk ata high leve . ‘The auditor should document the basis for his assessmeny b. The auditor should perform tests of controls The auditor should document his conclusion that contro) 5). ata high level d. The auditor need not document his understanding of control s control fis The auditor ordinarily asse: ata high level for some, \ br all assertions when The entity’s internal control is Evaluating the effectiveness f the effective control would not be efficens a. YES YES b. YES NO NO NO © NO YES The objective of tests of details of transactions performed as tests of controls is to a. Monitor the design and use of entity documents such as prenumbered shipping form, b. Determine whether controls have been placed in operation, c. Detect material misstatements in the account balances of the financial statements. © Evaluate whether controls operated effectively. Tests of controls are designed to obtain evidence to support the auditor’s assessment of control risk a. ata high level 6 at less than high level c. at zero level d. at the maximum levelis likely to use four types of procedures to support the of An al v ectiveness of intemal controls, Which of the following one NOT be used? vn “make inquiries of appropriate client personnel Boxamine documents, records, and reports ° reperform client proc dures S anspect the design of documents s in internal control of a public company Must be _yfaterial weakne: 3 eed in writing to which of the following? BT the SE members area of the company © audit committee of the company’s board of directors the PICPA of management who are responsible for the related jo, When a compensating control exists, the absence of a key control: & is no longer a concern because there is no longer a significant deficiency or matcrial weakness. b, _ is still a major concem to the auditor. could cause a material loss, so it must be tested using substantive procedures. d. is magnified and must be removed from the sampling process and examined in its entirety. 105, In general, 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. An independent auditor during tests of controls. b. Management when reviewing interim financial statements and reconciling account balances. I>) Employees in the normal course of performing their assigned functions. d. Outside consultants who issue a special-purpose report on internal control structure. 239106. A consideration of internal control made during an audit is us, not sufficient to express an opinion on an entity's controls becayy | a. Weaknesses in the system may go unnoticed during the audi engagement. b. A consideration of internal control is not necessarily made during an audit engagement. fp Only those controls on which an auditor intends to tely are viewed, tested and evaluated. d. Controls can change each year. A 107. During the consideration of internal control in a financial state, audit, an auditor is not obligated to 4 Search for significant deficiencies in the operation of the interny b. ‘Men control. Understand the internal control and the information system, c. Determine whether the control activities relevant to aud, planning have been implemented. d. Perform procedures to understand the design of internal contro, 108. The management letter is used a. To allow management to corroborate oral representations to th auditor b. To confirm the terms of the audit engagement c. To document the auditor's consideration of internal controls To make recommendations to the client based on observations made during the audit 240