26. Internal controls are designed to provide reasonable assurance that: A. Control policies have not been circumvented through managements joint effort B. The internal auditing departments guidance and oversight of managements performance is accomplished economically and efficiently C. Managements planning, organizing, and directing processes are properly evaluated D. Material errors or fraud would be prevented or detected and corrected within a timely period by employees in the course of performing their assigned duties

27. Which of the following is not an assurance to be provided by an effective internal control system? A. Management is responsible for knowledge and authorization of transactions B. transactions are recorded to maintain accountability for assets C. Access to assets is limited to members of management D. Transactions are recorded to permit the preparation of reliable financial statements.

28. An entitys internal control consists of policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved. Only some of these objectives, policies, and procedures are relevant to a financial statement audit. Which of the following would most likely be considered in an audit of financial statements? A. Timely reporting and review of quality control results B. Maintenance of control over unused checks C. Marketing analysis of sales generated by advertising projects D. Maintenance of statistical production analyses

29. When an organization has strong internal control, management can expert various benefits. The benefit least likely to occur is A. A reduced cost of an external audit B. An elimination of employee fraud C. The availability of reliable data for decision making purposes and protection of important documents and records D. An assurance of compliance to applicable laws and regulations

30. Which of the following statement about internal control is correct? A. Effectively designed 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 C. Exceptionally 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

31. Internal control can only provide reasonable and not an absolute assurance of achieving entitys control objectives. One of the factors limiting the likelihood of achieving those objectives is that A. The auditors primary responsibility is the detection of fraud B. The board of directors is active and independent C. The cost of internal control should not exceed its benefits D. Management monitors internal control

32. A proper segregation of duties requires that an individual who is A. Authorizing a transaction records it B. Authorizing a transaction maintains custody of the asset that results from the transaction C. Maintaining a custody of an asset be entities to have access to the accounting records for the asset D. Recording a transaction not compares the accounting records of the asset with the asset itself 33. External factors can either strengthen or weaken an entitys internal control. Which of the following conditions supports strong internal control? A. Strict monitoring by the Bureau of Internal revenue B. The existence of related parties and related party transactions C. Pressure imposed by the financial community to improve earnings performance D. An economic downturn

34. Proper segregation of functional responsibilities in an effective system of internal control callse for separation of the functions of A. Authorization, execution, and payment B. Authorization, recording, and custody C. Custody, execution, and reporting D. Authorization, payment, and recording

35. For good internal control, which of the following functions should not be the responsibility of the treasurers department? A. Data processing B. Handling of cash C. Custody of securities D. Establishing credit policies

36. In general, a material internal control weakness may be defined as condition in which material errors or fraud would ordinarily not be detected within a timely period by A. An auditor during the normal study and evaluation of the system of internal control B. A controller when reconciling accounts in the general ledger C. Employees in the normal course of performing their assigned functions D. The chief financial officer when reviewing interim financial statements

37. In general, material irregularities perpetrated by which of the following are most difficult to detect? A. Internal auditor B. Computer operator C. Cashier D. Controller

38. Internal control is ineffective when the computer personnel A. Participates in computer software acquisitions decisions B. Designs documentation for computerized systems C. Originate changes in master files D. Provides physical security for program files

39. An auditors consideration of a computers control activities has disclosed the following four circumstances. Which circumstance constitutes a significant deficiency in internal control? A. Compute operators do not have access to the complete software support documentation B. Computer operators are closely supervised by the programmers C. Programmers are not authorized to operate computers D. Only one generation of backup files is stored in an off-premises location

40. One of the features that distinguishes computer processing from manual processing is A. Computer processing virtually eliminates the occurrence of computational error normally associated with manual processing B. Errors or fraud in computer processing will be detected soon after their occurrences C. The potential for systematic error is ordinarily greater in manual processing than in a computerized processing D. Most computer systems are designed so that transaction trails useful for audit purposes do not exist

41. Which of the following is not a major reason why an accounting audit trail should be maintained for a computer system? A. Query answering B. Deterrent to fraud C. Monitoring purposes D. Analytical review

42. Adequate control over access to data processing is required to A. Prevent improper use or manipulation of data files and programs B. Ensure that only console operators have access to program documentation C. Minimize the need for backup data files D. Ensure that hardware controls are operating effectively and as designed by the computer manufacturer

43. In studying a clients internal controls, an auditor must be able to distinguish between prevention controls and detection controls. Of the following data processing controls, which is the best detection control? A. Use of data encryption techniques B. Review of machine utilization logs C. Policy requiring password security D. Backup and recovery procedure

44. Which of the following is classified as general computerized information system controls that relates to segregation of duties? A. Reconciliation of record counts B. Authorization of modifying the operating system C. A system of transaction logs D. Follow up all errors detected during processing

45. For good internal control over computer program changes, a policy should be established requiring that A. The programmer designing the change adequately test the revised program B. All program changes be supervised by the CBIS control group C. Superseded portions of programs be deleted from the program, run manual to avoid confusion D. All proposed changes should be approved in writing by a responsible individual

46. Which of the following would result to an ineffective control in a computer-based information system? A. The computer librarian maintains custody of computer program instructions and detailed listings B. Computer operators have access to operator instructions and detailed program listings C. The control group is solely responsible for the distribution of all computer output D. Computer programmers write and debug programs which perform routines designed by the system analyst.

47. What is the computer process called when data processing is performed concurrently with a particular activity and the results are available soon enough to influence the particular course action being taken or the decision being made? A. Batch processing B. Real time processing C. Integrated data processing D. Random access processing

48. Online real-time systems and electronic data interchange systems have the advantages of providing more timely information and reducing the quantity of documents associated with less automated systems. The advantages, however, may create some problems for the auditor. Which of the following characteristics of these systems does not create an audit problem? A. The lack of traditional documentation of transactions creates a need for greater attention to programmed controls at the point of transaction input B. Hard copy may not be retained by the client for long periods of time, thereby necessitating more frequent visits by the auditor C. Control listing may be more difficult given the increased vulnerability of the clients files to destruction during the testing process D. Consistent on-line processing of recurring data increases the incidence of errors

49. To ensure that goods received are the same as those shown on the purchase invoice, a computerized system should: A. Match selected fields of the purchase invoice to goods received B. Maintain control totals of inventory value C. Calculate batch totals for each input] D. Use check digits in account numbers

50. Errors in data processed in a batch computer system may not be detected immediately because A. Transaction trails in a batch system are available only for a limited period of time B. There are time delays in processing transactions in a batch system C. Errors in some transactions cause rejection of other transactions in the batch D. Random errors are more likely in a batch system than in an on-line system