ch7

Question 1 (1 point) A public accountant reviews Shah Ltd.'s payroll procedures. An example of an internal control weakness is to assign to a department supervisor the responsibility for: 0 Reviewing and approving time cards for subordinates. O Initiating requests for salary adjustments for subordinate employees. 0 Distributing payroll cheques to subordinate employees. 0 Interviewing applicants for subordinate positions prior to hiring by the personnel department. D View hint for Question 1 Question 2 (1 point] The preparation of the bank reconciliation is a detective control. Question 3 (1 point) The reason an organization puts controls in place is to ensure that if errors occur in the processing of transactions, these errors are identified and rectified quickly. Question 4 (1 point) The preparation of narratives involve the auditor describing in words each step of the flow of transactions from start to finish. Question 5 (1 point) Copies of sales invoices show different unit prices for apparently identical items. A control to prevent this error would be: 0 Statistical sales data are compiled and reconciled with recorded sales. 0 All sales invoices are compared with shipping documents. 0 Differences reported by customers are satisfactorily investigated. 0 Prices should be automatically entered on invoices based upon master file data. Question 6 (1 point) Which of the following is not an inherent limitation of internal control? 0 collusion by two or more individuals to circumvent a control 0 a control within a software program being overridden or disabled 0 human error that results in a breakdown in internal control 0 small companies will not have sufficient resources available to adequately segregate incompatible functions Question 7 (1 point) What will an auditor consider if they find even one control exception when testing controls? Select all that apply. C] decreasing the sample size C] consider the existence of a compensating control C] extending the sample size C] amending the decision to rely on the control C] dismissing the exception as a random occurrence Question 8 (1 point] Policies and procedures that help ensure management's directives are carried out are known as O the control environment. 0 control activities. O information systems. O the risk assessment process. Question 9 (1 point) Which of the following increases the potential for risks to have a material impact on the financial statements? Select ALL that apply. C] management willing to accept high risk when entering into business decisions C] careful monitoring of the entity's contracts and commitments C] failure to monitor commitments of the entity C] major commitments are carefully considered and evaluated C] management enters new business decisions quickly Question 10 {1 point) An internal control exception is an observed condition that provides evidence that the control being tested did not operate as intended