7th week assessment

Name: Karem Mohamed Mahmoud ID/18108925

Answer the following questions:

Question (1) (1 point each)

Choose the correct answer for each of the following statements: ILOS( 1.1), 2.1,
3.1, 1.2 , 2.2, 1.4 , 2.4)

1- Which of the following is classified as operational audit?

a- Render an opinion on the fairness of the presentation of financial
statements of a public corporation.
b- Review the interim financial statements which are issued quarterly
c- Report on how the installation of a new computer system would help a
client reduce data processing costs and improve financial reporting.
d- Reviewing whether the Abo Quir Company for Fertilizers is maintaining
allowable air pollution rates.

2- The responsibility for detecting a white-collar crime is assigned to a

(an)……
a- Internal auditor
b- Governmental auditor
c- External auditor
d- Forensic auditor

3- All the followings are the external audit features except:

a- External auditor is responsible for detecting the material misstatements in
the historical financial statements
b- The external audit report is standardized and presented mainly to
shareholders
c- One of its objectives is reviewing the compliance with governance
principles, risk management and effectiveness of internal control system
d- It is usually backward-looking activity

4- Attestation services involve all the following except:

a- Audit of historical financial statements
b- Review of historical financial statements
c- Accounting and bookkeeping
d- Audit of internal control over financial reporting
5- internal control objectives with respect to Compliance include:
a- Ensure that the financial statements are aligned with the accounting
concepts and principles (GAAP).
b- adherence to laws, regulations and procedures to which the entity is
subject
c- the controls set by the organization has been properly designed and they
are operating effectively
d- ensure that all operational and financial performance goals are realistic.

6- All the followings are control activities principles of COSO framework

except:
a- activities that mitigate risks to an acceptable level
b- Develop general controls over technology
c- Integration with risk assessment
d- Accountability

7- ----------------- are activities designed to either reduce risk associated with

business objectives that are not critical to the organization’s survival or
success or serve as a backup to a key control.
a- Primary controls
b- Directive controls
c- Secondary controls
d- Process-level controls

8- basic financial statement assertions include the followings except:

a- classification
b- completeness
c- existence
d- comparability

9- The primary responsibility for establishing and maintaining internal

control rests with
a. The external auditor.
b. Management.
c. The controller.
d. The treasurer.

10- Which of the following would not be considered an inherent limitation of

the potential effectiveness of an entity’s internal control structure?
a. Incompatible duties
b. Mistakes in judgment
c. Management override
d. Collusion among employees
 11- Actions, policies, and procedures that reflect the overall attitude of
management, directors and owners of the entity about internal control
relate to which of the following internal control components?
a. Risk assessment
b. Information and communication
c. Control environment
d. Monitoring
12- Vendor account reconciliations are performed by three clerks in the
accounts payable department on Friday of each week. The accounts
payable supervisor reviews the completed reconciliations the following
Monday to ensure they have been completed. The work performed by the
supervisor is an example of which COSO component?
a. Control activities b.
b. Risk assessment c.
c. Information and communication
d. Monitoring
13- A material weakness in internal control represents a control deficiency
that
a. more than remotely adversely affects a company’s ability to initiate,
authorize, record, process, or report external financial statements reliably.
b. B. results in a reasonable possibility that internal control will not prevent or
detect material financial statement misstatements
c. exists because a necessary control is missing or not properly designed.
d. D. reduces the efficiency and effectiveness of the entity’s operations.
14- Narratives, flowcharts, and internal control questionnaires are
three common methods of
a. testing the internal controls.
b. documenting the auditor’s understanding of internal controls.
c. designing the audit manual and procedures.
d. documenting the auditor’s understanding of a client’s organizational
structure.
15- Which of the following is the correct definition of “control
deficiency?”
a. A control deficiency exists if the design or operation of controls does not permit
company personnel to prevent or detect misstatements on a timely basis.
b. A control deficiency exists if one or more deficiencies exist that adversely affect a
company’s ability to prepare external financial statements reliably.
c. A control deficiency exists if the design or operation of controls results in a more
than remote likelihood that controls will not prevent or detect misstatements.
d. None of the above is a correct definition.
Question (2) (0.5 point each)

Identify whether each of the following statements is (True) or (False):

 1- A primary purpose of an operational audit is to determine whether the auditee
is following specific procedures, rules, or regulations set by some higher
authority. )False)
2- Assurance services are independent professional services that improve the
quality of information or its context for decision makers. (True)
3- Compensating controls are designed to mitigate risks associated with a critical
business objective. (False)
4- Entity-Level Control is a control that operates across an entire entity and
requires more detailed in their focus than process-level controls. (False)
5- Directive controls are designed to Encourage or cause the occurrence of
desirable events. (True)
6- Internal controls can never be completely effective, regardless of the care
followed in their design and implementation. (True)
7- Most effective and persuasive procedures to test effectiveness of controls
throughout all, or at least most, of the period under audit is inquiry of
management. (True)
8- For proper internal control, there should be adequate separation of duties. However,
the extent of separation of duties considered “adequate” depends heavily on the size
of the organization. (True)
9- Smaller companies usually have more extensive internal controls than larger
companies which result in fewer frauds being committed at small companies.
(False)
10- Adequate separation of duties is an important control activity and includes
Segregation of the following activities in an organization: custody of assets,
accounting, authorization, and operational responsibility. (True)

Question(3)

Answer the questions pertain to the following scenarios

Scenario 1 (5 points)

The audit committee of ABC Company suggested your CPA firm to audit internal
control over financial reporting of ABC Company. Suppose that, based on the
control tests and audit procedures to accumulate and evaluate persuasive
evidences, you and your independent audit team believed that the company
maintains effective internal controls over financial reporting.

Required:

1. What are the criteria or principles that used by your audit team to evaluate the
information and communication component of COSO integrated framework?
1-Demonstrate commitment to integrity and ethical values.
2-Ensure that board exercises oversight responsibility.
 3-Establish structures, reporting lines, authorities and responsibilities.
4-Demonstrate commitment to a competent workforce.
5- Hold people accountable.
2. Identify the relevant methods that used to understand and document internal
control?
The audit committee of ABC Company suggested your CPA firm to audit
internal control over financial reporting of ABC Company. Suppose that,
based on the control tests and audit procedures to accumulate and evaluate
persuasive evidences, you and your independent audit team believed that the
company maintains effective internal controls over financial reporting.

3. Explain how your audit could differentiate between control deficiency

levels.(mention the dimensions)
A significant deficiency is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, that is less severe than a material
weakness yet important enough to merit attention by those responsible for
oversight of the company's financial reporting.
4. Which opinion will the independent audit firm issue?

Qualified opinion-qualified report

5. Suppose that the ABC Company was classified as small or medium sized
company, do you think your audit team will find the same conclusion? If not,
explain why? and what are your proposals to help the ABC company to
maintain effective internal control structure over financial reporting?
Yes. Effective internal control reduces the risk of asset loss, and helps ensure
that plan information is complete and accurate, financial statements are
reliable, and the plan's operations are conducted in accordance with the
provisions of applicable laws and regulations.

Scenario 2 (5 points)
The smallest branch of Connor Cosmetics employs Mary Cooper, the branch
manager, and her sales assistant, Janet Hendrix. The branch uses a bank account to
pay expenses. The account is kept in the name of “Connor Cosmetics—Special
Account.” To pay expenses, checks must be signed by Mary Cooper or by the
treasurer, John Winters.
Cooper receives the cancelled checks and bank statements. She reconciles the
branch account herself and files cancelled checks and bank statements in her
records. She also periodically prepares reports of cash disbursements and sends
them to the home office.
Required:
a. List the deficiencies in internal control of this situation.
 1- The Manager should not reconcile the bank statements and cancelled
checks. They should be sent to the home office by the bank and should be
compared against the managers’ report of disbursements.
2- The manager could make checks out to herself or others, with no record of
them, by using the company’s money as her own bank account.

b. How would you improve internal controls for the company?

1-Segregate Accounting Duties
2. Restrict Access to Financial Systems
3. Increase Oversight
4. Have Financial Statements Reviewed by a Third Party

c.. identify the types audit procedures to perform tests of controls

1-Inquiry
2-Observation
3-Examination or Inspection of Evidence
d. write the auditor`s opinion paragraph

Good luck