TESTS OF CONTROLS

1. A test of control
I. Describes any auditing procedure used to evaluate a company’s internal controls.
II. Aims to determine whether these internal controls are sufficient to detect or prevent risks of
material misstatements.
a. Only I is true
b. Only II is true
c. Both I and II are true
d. Neither I nor II is true

2. Statement I. Tests of controls provide evidence about the potential for misstatements in a client's
accounting system.
Statement II. Tests of controls are generally less expensive to perform than analytical procedures.
a. Only I is true
b. Only II is true
c. Both I and II are true
d. Neither I nor II is true

3. Tests of controls are performed to obtain audit evidence about the effectiveness of the
a. Operation of the internal controls at the time the tests are being applied.
b. Operations of the internal controls in eliminating fraud and errors.
c. Design of the internal controls in eliminating fraud and errors.
d. Design of the accounting and internal controls systems.

4. The auditor should design and perform tests of controls to obtain sufficient appropriate audit
evidence about the operating effectiveness of relevant controls if
I. The auditor's assessment of risks of material misstatement at the relevant assertion level includes
an expectation that the controls are operating effectively (that is, the auditor intends to rely on the
operating effectiveness of controls in determining the nature, timing, and extent of substantive
procedures) or
II. Substantive procedures alone can provide sufficient appropriate audit evidence at the relevant
assertion level.
a. Only I is true
b. Only II is true
c. Both I and II are true
d. Neither I nor II is true

5. In designing and performing tests of controls, the auditor should

I. Perform other audit procedures in combination with inquiry to obtain audit evidence about the
operating effectiveness of the controls,
II. Determine whether the controls to be tested depend upon other controls (indirect controls)
and, if so, whether it is necessary to obtain audit evidence supporting the operating effectiveness
of those indirect controls. (Ref: par. A33–.A34)
a. Only I is true
b. Only II is true
c. Both I and II are true
d. Neither I nor II is true

6. In determining whether it is appropriate to use audit evidence about the operating effectiveness
of controls obtained in previous audits and, if so, the length of the time period that may elapse
before retesting a control, the auditor should consider the following EXCEPT:
a. the effectiveness of other elements of internal control, including the control environment, the
entity's monitoring of controls, and the entity's risk assessment process;
b. the risks arising from the characteristics of the control, including whether the control is manual
or automated;
c. the effectiveness of general IT controls;
d. the risks of material statement and the extent of reliance on the control.

7. If the auditor plans to rely on controls over a risk the auditor has determined to be a significant
risk, the auditor should test the operating effectiveness of those controls in the
a. Previous period
b. Current period
c. Future period
d. None

8. When evaluating the operating effectiveness of relevant controls, the auditor should evaluate
whether misstatements that have been detected by substantive procedures indicate that controls are
not operating effectively. The absence of misstatements detected by substantive procedures,
however,
a. does not provide audit evidence that controls related to the relevant assertion being tested are
ineffective.
b. does not provide audit evidence that controls related to the relevant assertion being tested are
effective.
c. does provide audit evidence that controls related to the relevant assertion being tested are
effective.
d. does provide audit evidence that controls related to the relevant assertion being tested are
ineffective.

9. The length of time between retesting such controls is also a matter of professional judgment but
is required by paragraph to be at least
a. Once in every third audit
b. Twice in every third audit
c. Thrice in every third audit
d. None of these

10. In accordance with section 265,Communicating Internal Control Related Matters Identified in
an Audit, the identification by the auditor of a material misstatement of the financial statements
under audit in circumstances that indicate that the misstatement would not have been detected by
the entity's internal control is an indicator of a
a. Material strength
b. Material weakness
c. Either A or B
d. None

11. In addition to the degree of reliance on controls, matters the auditor may consider in
determining the extent of tests of controls include the following EXCEPT:
a. The frequency of the performance of the control by the entity during the period
b. The length of time during the audit period that the auditor is relying on the operating
effectiveness of the control
c. The relevance and comparability of the audit evidence to be obtained regarding the operating
effectiveness of the control at the relevant assertion
d. The expected rate of deviation from a control

12. An auditor is least likely to test controls that provide for

a. Classification of revenue and expense transactions by product line
b. Approval of the purchase and sale of trading securities
c. Segregation of the functions of recording disbursements and reconciling the bank account
d. Comparison of receiving reports and vendors’ invoices with purchase orders

13. The auditor is examining copies of sales invoices only for the initials of the person
responsible for checking the extensions. This is an example of a
a. Test of controls
b. Dual purpose test
c. Substantive test
d. Test of balances

14. Which of the following would NOT be a method used to conduct tests of controls?
a. Inquiry
b. Walkthrough
c. Confirmation
d. Observation

15. 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 renumbered shipping form.
b. Determine whether controls have been placed in operation.
c. Detect material misstatements in the account balances of the financial statements.
d. Evaluate whether controls operated effectively.

16. An auditor wishes to perform tests of controls on a client’s cash disbursements procedures. If
the controls leave no audit trail of documentary evidence, the auditor most likely will test the
procedures by
a. Confirmation and observation.
b. Observation and inquiry.
c. Analytical procedures and confirmation.
d. Inquiry and analytical procedures.

17. After obtaining an understanding of a client’s controls, an auditor may decide to omit tests of
the controls. Which of the following in not appropriate reason to omit tests of controls?
a. The controls duplicate other controls.
b. The controls appear adequate.
c. Reportable conditions preclude assessing control risk below the maximum.
d. The effort to test controls exceeds the effort saved by not performing substantive tests.

18. Before relying on the system of internal 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
a. Substantive tests
b. Transaction tests
c. Tests of controls
d. Tests of trends and ratios

19. The following statements are true about observation when used as tests of control procedures,
EXCEPT.
a. The auditor may supplement his observations with other tests of control capable of providing
audit evidence.
b. Audit evidence obtained by doing observation pertains only to the point in time at which the
procedure was applied.
c. Observation of who applies a control procedure is useful as a test of control procedures when
evaluating control effectiveness of both computerized and manual system
d. Ordinarily, making inquiries provides more reliable audit evidence than doing observation
when testing segregation of functional responsibilities.

20. Tests of controls may include the following, EXCEPT:

a. Reperformance of internal control procedures
b. Inquiries about, and observation of, internal controls which leave no audit trail.
c. Inspection of documentary support for transactions evidencing authorization
d. Analytical procedures involving comparison of operating expenses with budgeted amount.

21. This refers to its purpose and its type which provides further application guidance about audit
procedures. This is most important in responding to the assessed risks.
a. Nature
b. Timing
c. Extent
d. None

22. This refers to when it is performed or the period or date to which the audit evidence applies.
a. Nature
b. Timing
c. Extent
d. None

23. This refers to the quantity to be performed (for example, a sample size or the number of
observations of a control activity).
a. Nature
b. Timing
c. Extent
d. None

24. Based on the audit procedures performed and the audit evidence obtained, the auditor
should________, before the conclusion of the audit, whether the assessments of the risks of
material misstatement at the relevant assertion level remain appropriate.
a. Reperform
b. Inspect
c. Evaluate
d. None

25. Which of the following statements is not true?

a. Analytical procedures emphasize the overall reasonableness of transactions and balances
b. Tests of controls are concerned with evaluating whether controls are sufficiently effective to
justify reducing control risk and thereby reducing analytical review procedures
c. Substantive tests of transactions emphasize the verification of transactions recorded in the
journals and then posted in the general ledger
d. Tests of details of balances emphasize the ending balances in the general ledger

26. Statement I. Tests of controls and substantive tests of transactions are rarely, if ever, conducted
simultaneously on the same transactions.
Statement 2. Tests of controls may be performed prior to substantive tests of transactions.
a. Only I is true
b. Only II is true
c. Both I and II are true
d. Neither I nor II is true

27. The evaluation of deviations that were observed upon completing tests of controls
a. May require the need for doing more extensive understanding of control.
b. May require more extensive tests of controls.
c. Always requires documentation of the basis of assessment of control risk.
d. May require modification of the nature, timing, and extent of planned substantive procedures.

28. Tests of controls address each of the following questions EXCEPT:

a. How were the procedures performed?
b. Why were the procedures performed?
c. Were the necessary procedures performed?
d. Who performed the procedures?

29. Which of the following tests form the basis for an auditor's report on internal control over
financial reporting?
a. Analytical procedures
b. Tests of transactions
c. Tests of controls
d. Tests of details of balances
30. When controls are deemed ineffective and assessed control risk is at the maximum for a private
company, there will be________ emphasis placed on tests of controls.
a. No
b. Relatively little
c. Moderate
d. Heavy