1. The main purpose of risk assessment procedures is to

1. Obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatements at the financial statement and assertion levels
2. Test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level
3. Detect material misstatements at the assertion level.
4. All of the given choices are main purposes of risk assessment procedures

2. Inquiries directed towards those charged with governance may most likely

1. Relate to their activities concerning the design and effectiveness of the entitys internal control and whether management has satisfactorily responded to any findings from these activities
2. Help the auditor understand the environment in which the financial statements are prepared.
3. Relate to changes in the entitys marketing strategies, sales trends, or contractual arrangements with is customers.
4. Help the auditor in evaluating the appropriateness of the selection and application of certain accounting policies

3. A reason to establish internal control is to

1. Have a basis of planning the audit
2. Provide reasonable assurance that the objectives of the organization are achieved
3. Encourage compliance with organizational objectives
4. Ensure the accuracy, reliability, and timeliness of information

4. The auditors review of the clients internal control is documented in order to substantiate

1. Conformity of the accounting records with Philippine Financial Reporting Standards
2. Representation a to adherence to requirements of management
3. Representation as to compliance with Philippine Standards on Auditing
4. The fairness of the financial statement presentation

5. A system of internal control, regardless of how carefully designed and implemented, contains certain inherent limitations. Which of the following errors or irregularities is not cause by all inherent limitation?

1. The president and CEO, with the assistance of the corporate controller, inflated earning by recording fictitious sales at year-end
2. A newly installed electronic data processing system failed to provide for a comparison of sales order amount with prior customer balance and credit limit.
3. Numerous recording errors occurred because persons analyzing and recording transactions did not have the necessary accounting background
4. A computer programmer and a computer operator conspired to divert funds from the company to an account controlled to the dishonest employees

6. As part of understanding internal controls, and auditor is not required to

1. Consider factors that affect the risk of material misstatement
2. Ascertain whether internal control policies and procedures have been place in operation
3. Identify the types of potential misstatements that may occur
4. Obtain knowledge about the operating effectiveness of internal control

7. The purpose of tests of controls is to provide reasonable assurance that the

1. Accounting treatment if transaction and balances is valid and proper
2. Control procedures are functioning as intended
3. Entity has complied with disclosure requirements of PFRS
4. Entity has complied with requirements of quality control

8. Which of the following statement about internal control is correct?

1. Effectively designed internal control reasonably ensures that collusion among employees cannot occur
2. The establishment and maintenance of internal control are important responsibilities of the internal auditor
3. Exceptionally strong internal control is enough for the auditor to eliminate substantive tests on a significant account balance
4. The cost benefit relationship is a primary criterion that should be considered in designing internal control

9. 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

1. The auditors primary responsibility is the detection of fraud
2. The board of directors is active and independent
3. The cost of internal control should not exceed its benefits
4. Management monitors internal control

10. Emir is responsible for the custody of finished goods in the warehouse. If his company wishes to maintain strong internal control, which of the following responsibilities are incompatible with his primary job?

1. He is also responsible for the companys fixed asset contract ledger
2. He is responsible for receiving the goods into the warehouse
3. He is responsible for the accounting records for all receipts and shipments of the goods from the warehouse
4. He is responsible for issuing goods for shipment

11. Internal control should provide reasonable but not necessarily absolute assurance which means that:

1. Internal control is a managements not auditors responsibility
2. An attestation engagement about managements internal control assertions may not necessarily detect all reportable conditions
3. The cost of control activities should not exceed the benefits
4. There is always a risk that reportable conditions may result in material misstatements

12. Even with the most effectively designed control structure, the auditor must obtain audit evidence, beyond testing the controls for every

1. Financial statement account
2. Material financial statement account
3. Financial statement account that will be relied upon by third parties
4. Transaction

13. Which of the following would be considered an advantage of using an internal control questionnaire in understanding and documenting the controls for an important accounting application? The questionnaire can be:

A. computerized to provide linkages of weaknesses to particular types of errors that might occur in the account balances B. used for many years without updating C. easily understood and provide easy identification of potential control deficiencies through no responses to questions. D. adapted to both large and small businesses as well as to different industries