Multiple Choice Questions
The following are general questions about internal control. Choose the best response.
a. When considering internal control, an auditor must be aware of the concept of reasonable assurance, which recognizes that the
(1) Employment of competent personnel provides assurance that management's control objectives will be achieved.
(2) Establishment and maintenance of internal control is an important responsibility of management and not of the auditor.
(3) Cost of internal control should not exceed the benefits expected to be derived there-from.
(4) Separation of incompatible functions is necessary to ascertain that the internal control is effective.
b. 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?
(1) Control environment
(2) Information and communication
(3) Risk assessment
(4) Monitoring
c. 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?
(1) Control activities
(2) Information and communication
(3) Risk assessment
(4) Monitoring
d. What is the independent auditor's principal purpose for obtaining an understanding of internal control and assessing control risk in a financial statement audit?
(1) To comply with generally accepted accounting principles.
(2) To obtain a measure of assurance of management's efficiency.
(3) To maintain a state of independence in mental attitude during the audit.
(4) To determine the nature, timing, and extent of subsequent audit work.