6. Consider the following statements: I. A material weakness in internal controls is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in the company's annual or interim financial statements will not be prevented or detected and corrected on a timely basis. II. A transaction (audit) trail includes the documents and records that allow an auditor to trace a transaction from its origination through to its final disposition, or vice versa. (Statement is TRUE) a. I is true; it is true b. I is true, it is false c. lis false; it is true d. I is false; it is false 7. Which controls include controls over System Software acquisition, change and maintenance (see page 202]? a. Application controls b. Data Capture controls c. General controls d. Output controls 8. After obtaining an understanding of internal controls and assessing control risk of an entity, an auditor decided not to perform tests of controls for purposes of the audit. The auditor most likely decided that a. the available evidential matter obtained through tests of controls would not support an increased level of control risk. b. A reduction in the assessed level of control risk is justified for certain financial statement assertions. c. It would be inefficient to perform tests of controls that would result in a reduction in planned substantive procedures. d. The assessed level of Audit Risk is deemed too low. 9. All of the following are control deficiencies except: a. Absence of appropriate reviews of transactions. b. fixed assets are financed with long-term debt. c. Inadequate documentation of the components of internal control d. The absence of an internal process to report deficiencies in internal control to management on a timely basis. e. All of the above represent control deficiencies. 10. Which of the following best represents a walkthrough? a. The controller reviews the bank reconciliation, and the resulting journal entries, prepared by the accountant b. The auditor walks the production line to find inefficiencies in the inventory process and reports them to management C. The controller takes a sample of write-offs to ensure they have been adequately documented and recorded. d. The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding