31.The risk of fraudulent financial reporting increases in the presence of

Group of answer choices

incentive systems based on operating income.

substantial increases in sales.

improved control systems.

frequent changes in suppliers.

32.Which of the following is most likely to be an overall response to fraud risks identified in an audit?

Group of answer choices

Supervise members of the audit team less closely and rely more upon judgment.

Use less predictable audit procedures.

Use only certified public accountants on the engagement.

Place increased emphasis on the audit of objective transactions rather than subjective transactions.

33.Which of the following is not an element of an entity's internal control?

Group of answer choices

The control environment

The information system

Control risk

Control activities

34.What is the primary purpose of effective internal control in an organization?

Group of answer choices

Completion of a successful audit for the entity.

Shareholders' involvement in the company's success.

Achievement of certain organizational goals.

Obtaining profitability and financial strength.

35.Which of the following is least likely to be an evidence of operating effectiveness of controls?

Group of answer choices

Cancellation of supporting documents.

Confirmation of bank balances.

Signatures on authorization forms.

The policy of documenting the usage of computer programs.

36.Internal control is a function of management, and effective control is based upon the concept of charge and discharge of responsibility and duty. Which of the following is an important feature of effective internal control?

Group of answer choices

Responsibility for the accounting duties must be borne by the auditing committee of the company.

Responsibility for accounting and financial duties should be assigned to one responsible officer.

Responsibility for the performance of each duty must be fixed.

Responsibility for accounting activities and duties must be assigned only to employees who are bonded.

37.Which of the following is an inherent limitation of any client's internal control?

Group of answer choices

The procedures that are designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against frauds perpetrated by management.

The competence and integrity of client personnel provide an environment conducive to control and provide assurance that effective control will be achieved.

The benefits expected to be derived from effective internal control should not exceed the costs of such control.

The procedures whose effectiveness depends on segregation of duties can be circumvented by collusion.

38.Which of the following is not a part of the control environment?

Group of answer choices

Management philosophy and operating style

Organizational structure

Information and communication systems

Assignment of authority and responsibility

39.Internal control is primarily established within a company to accomplish which of the following objectives?

Group of answer choices

Aid in the effective auditing of the company

Catch all errors that may occur in the company

Provide reasonable assurance that the company's objectives will be achieved

Prevent irregularities

40.To obtain an understanding of the relevant policies and procedures of internal control, the auditor performs all of the following except:

Group of answer choices

Make observations.

Design substantive tests.

Inspect documents and records.

Make inquiries.