auditing

TIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 1) Which of the following is not one of the three primary objectives of effective internal control? B) assurance of elimination of business risk A) compliance with laws and regulations C) efficiency and effectiveness of operations D) relability of financial reporting 2) Internal controls 2) A)consist of policies and procedures designed to provide reasonable assurance that the company achieves its objectives and goals B) only apply to SEC companies O guarantee that the company complies with all laws and regulations D) are implemented by and are the responsibility of the auditors 3) Who is responsible for establishing a company's internal control? A)Internal auditors C) senior management B) audit committee D) FASB 4) Two key concepts that underlie management's design and implementation of internal control are 4) A) inherent limitations and reasonable assurance B) costs and materiality C) absolute assurance and costs D) collusion and materiality 5) Internal controls are not designed to provide reasonable assurance that 5) A) the company's resources are used efficdently and effectively B) company personnel comply with applicable rules and regulations C) transactions are executed in accordance with management's authorization. D) all frauds will be detected 6) Which of the following parties provides an assessment of the effectiveness of internal control over 6) financial reporting for public Management A) Financial statement auditors Financial statement auditors B) Management No No Financial statement auditors Management No Management Yes Financial statement auditors No Which of the following activities would be least likely to strengthen a company's internal control? A) maintaining insurance for fire and theft B) separating accounting from other financial operations C) fixing responsibility for the performance of employee duties D) carefully selecting and training employees 8) Which of the following statements is most correct with respect to separation of duties? A) Employees who open cash receipts should record the amounts in the subsidiary ledgers B) Employees who authorize transactions should have recording responsibility for these transactions CA person who has temporary or permanent custody of an asset should account for that asset ployees who authorize transactions should not have custody of related assets 9) Which of the following is correct with respect to the design and use of business documents? 9) A) Documents should be prenumbered consecutively to facilitate control over missing B) Documents should be designed to be understandable only by those who use them C) The documents should be in paper format D) Decuments should be designed for a single purpose to avoid confusion in their use 10) The following four questions present scenaros that are misstatements that have o cured. For each one determine the control missing/ transaction related audit objective affected The incorrect price was used on sales invoice because the wrong price was in the master Ble of price A) adequate documentsv/occurence O physical controlVaccurady D)seperation of 11) During the physical count of inventory one counter wrote wrong discriptions and made errors in 11) counts B) physical control/accuracy D) adequate documents/accuracy C) seperation of duties/occurence 12) Employees took received merchandise for their personal use 12) A) seperation of duties/occurence D) physical control/occurence 13) An accounts payable clerk processed payments to himself by adding a fictitious vendor to 13) masterfile A) seperation of duties/occurence B) seperation of duties/accuracy D) seperation of duties/cutoff seperation of duties/completeness 14) When the auditor attempts to understand the operation of the accounting system by tracing a few14 14) transactions through the accounting system, the auditor is said to be A) vouching C) performing a walkthrough B) tracing Dy lesting controls 15) Narratives, flowcharts, and internal control questionnaires are three common methods of A) documenting the auditor's understanding of internal controls B) testing the internal controls C) designing the audit manual and procedures D) documenting the auditor's understanding of a client's organizational structure 16) For financial statement audits, auditors need to understand controls that are relevant to the audit in order to A) perform preliminary analytical procedures B) assess inherent risk. C) detect fraud D) identify and assess the risks of material misstatements 17) when identifying audit objectives and existing controls, A) the auditor identifies controls to satisfy each objective. B) audit objectives are identified for classes of transactions, account balances, and presentation and disclosure. C) it is helpful for the auditor to use the five control activities as reminders of controls D) all of the above 18) You are performing the audit of internal control for Clifton Company. Which of the following would represent a material weakness in internal control? A) The company's CFO was indicted for embezzling froam the company B) The company's audit committee has experienced unusual turnover of members C The CEO retired after twenty years of service to the company D) Bank reconciliations are done monthly control is a control elsewhere in the system that offsets the absence of a key control D) compensating 19) A(n) 19) B) design A) significant C) alternate 20) When dealing with the documentation of internal control 20) A) questionnaires offer useful checklists to remind the auditor of the many different types of internal controls that should exist B) flowcharts fail to show the segregation of duties in the company C) in a narrative, most questions simply require a 'yes" or no" response D) questionnaires and flowcharts should not be used together 21) 21) Before making the final assessment of internal control at the end of an audit, the auditor must Perform substantive tests Yes A) Test controls B) Perform substantive tests No Test controls C) Test controls No Perform substantive tests D) Test controls Perform substantive tests No No 22) When assessing control risk, A) all controls, including key controls, should be considered B) many auditors use actuarial tables to assist in the control risk assessment process C) each control can be used to satisfy only one audit objective D) many auditors use a control risk matrix to assist in the control risk assessment process 23) 23) The employee in charge of authorizing credit to the company's customers does not fully understand the concept of credit risk. This lack of knowledge would A) constitute a deficiency in operation of internal controls B) not constitute a deficiency C) constitute a deficiency of management D) constitute a deficiency in design of internal controls 24) An auditor is likely to use four types of procedures to support the operating effectiveness of 24) internal controls. Which of the following would generally not be used? A) reperform client procedures B) make inquiries of appropriate client personnel C) inspect design documents D) examine documents, records, and reports 25) If the results of tests of controls support the design and operations of controls as expected, the25) the auditor uses A) the same o risk C) a lower as the preliminary assessment ) a higher D) either a lower or higher 26) Which of the followtng represents a correct statement regarding internal control testing? 26) A) When auditors plan to use evidence about the operating effectiveness of intemal control contained in prior audits, auditing standards require tests of the controls' effectiveness at least every other year B) Testing of internal controls can only be performed by the auditor at the end of the fiscal year C) The greater the risk, the less audit evidence the auditor should obtain that controls are operating effectively D) The auditor uses control risk assessment and results of tests of controls to determine the level of substantive tests for the financial statement audit controls for a payroll system are listed. For each control ider the control activityland transaction related audit objective to which it applies Approval of department head or foreman is required before payroll is prepared A) Separation of duties/completeness C) Separation of duties/occurence B) Separation of duties/accuracy D) Separation of duties/timing 28) All prenumbered time records are accounted for before beginning data entry A) Adequate documents and records/completeness B) Adequate documents and records/occurence C) Adequate documents and records/accuracy 28) D) Adequate documents and records/timing 29) 29) All voided and spoiled payroll checks are properly mutlated and retained A) Adequate documents and records/accuracy B) Adequate documents and recordsytiming C. Adequate documents and records/completeness D) Adequate documents and records/occurrence 30) 30) All checks and notices of electronic payments not distributed are returned to the treasurer for safekeeping and follow-up B) separation of duties/completeness A) Physical control over assets/occurrence C) Physical control over assets/completeness D) separation of duties/timing 31) 31) Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests? 1. risk assessment procedures 2. tests of controls 3. substantive tests of transactions 4 substantive analytical procedures 5. tests of details of balances D) 2,3, and 4 B)1,2,and 3 C)3,4, and S A) 2, 3, and 5 32) The purpose of tests of controls is to provide reasonable assurance that the A) entity has complied with GAAP disclosure requirements B) entity has complied with requirements of quality control. C) accounting treatment of transactions and balances is valid and proper D) internal control procedures are functioning as intended 33) In the context of an audit of financial statements, substantive tests are audit procedures that A) are designed to discover significant subsequent events B) will increase proportionately with the auditor's reliance on internal control C) are designed to test for dollar misstatements D) may be eliminated under certain conditions 34) 34) Which of the following is truei A) Tests of details of balances focus on comparisons of recorded amounts to expectations developed by the auditor and income statement accounts and income statement accounts B) Tests of details of balances focus on the ending general ledger balances for both balance sheet C) Tests of details of balances focus on the transactions during the period for both balance sheet D) Tests of details of balances focus on the auditor's understanding of internal controls. 35) Which of the following audit tests is usually the least costly to perform 35)_ A) tests of balances C) substantive tests of transactions B) tests of controls D) substantive analytical procedures 36) The document that details the specific audit procedures for each type of test is the 36) A) audit strategy C) audit risk model. B) audit procedure. D) audit program. 37) 37) The following four questions relate to the mix of the five tests available to the auditor for the gathe evidence The client is a large comapny with sophisticated internal controls. The auditor does an extensive arr work to understand internal control and the same level of work to test controls. The control risk us this situation is most likely A) at a level determined at a later date B) at the lowest possible level C) at the maximum level D) at the level assessed due to the undestanding 38) 38) The company is medium sized with some controls and a few inherent risks. Procedures to obtain an understanding of internal control were done to a medium level. The most likely reason for the auditor not to have done this testing at an extensive level was: A) the benefits achieved out weighed the added costs B) the cost were too high. C) the controls were not going to be relied on. D) control risk was assessed as "medium 39) 39) For the company mentioned in the previous example, substantive tests would probably be conducted at which of the following levels A) not done at all C) at a medium level B) at the lowest possible level D) at the highest possible level 40) For the company mentioned at the previous question, test of controls disclosed significant control 40) deviations and errors. The level of control risk would most likely be set A) at the highest possible level C) at the lowest possible level B) at a level to be determined at a later date D) at the level initially assessed