Chapter 5
The sufficiency of evidence refers to the quality of audit evidence
TRUE/FALSE
FALSE
Once a level of control risk has been established, it cannot be changed.
TRUE/FALSE
FALSE
The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements
TRUE/FALSE
TRUE
According to the PCAOB, who is responsible for certifying the reliability of the internal controls over financial reporting process of an entity?
A) the entity CEO and CFO
B) the entity's board of directors
C) an internal control specialist
D) the external auditor
A) the entity CEO and CFO
Chapter 7
Footing is an example of:
A) recalculation
B) confirmation
C) inquiries
D) analytical procedures
A) Recalculation
The basic concept of internal control that recognizes the cost of internal control should not exceed the benefits expected to be derived is known as:
Reasonable assurance; management responsibility; Limited Liability; Management be Exception
Reasonable Assurance
Which of the following is least likely to represent a material weakness in internal control for Flynt Corp?
A) Flynt Corp. computer systems were not working properly for two days; consequently employees needed to do all reconciliations manually.
B) Flynt Corp. CFO was arrested last year for embezzling money from the entity.
C) For the current year, the auditor found a material misstatement in Flynt sales recognition that was undetected by the internal controls.
D) Flynt audit committee is deemed to be ineffective.
A) Flynt Corp. computer systems were not working properly for two days; consequently employees needed to do all reconciliations manually.
An entity's control activities include all of the following except:
A) performance reviews
B) information processing
C) external auditor's tests of controls
D) segregation of duties
C) external auditor's tests of controls
Chapter 6
Which of the following show the detailed general ledger accounts that make up a financial statement category on the auditors working trial balance?
A) Account Analyses
B) Supporting Schedule
C) Control Accounts
D) Lead Schedules
D) Lead Schedules
The independent auditor selects several transactions in each functional area and traces them through the entire system, paying special attention to evidence about whether or not the control activities are in operation. This is an example of:
A) Analytical Procedure
B) Test of Controls
C) Substantive Procedures
D) Functional Test
B) Test of Controls
The PCAOB Auditing Standards require the auditor to provide which of the following when performing an integrated audit?
A) Reasonable assurance on the financial statements, absolute assurance on internal control.
B) Reasonable assurance on internal control, absolute assurance on the financial statements
C) Absolute assurance on both the financial statements and internal control
D. Reasonable assurance on both the financial statements and internal control
D. Reasonable assurance on both the financial statements and internal control
An entity's IT infrastructure refers to:
A) hardware components
B) Programmers
C) Software
D) Data Provided by the System
A) hardware components
A confirmation is used to:
A) verify the inventory count is correct
B) verify that a control is being observed
C) verify a representation using information from a third party
D) verify that a specific trend is correct
C) verify a representation using information from a third party
Which of the following audit test would be regarded as a test of controls?
A) Tests of the specific items making up the balance in a given general ledger account.
B) Tests comparing inventory pricing to vendors invoices
C) Test of the signatures on canceled checks to the board of directors authorizations.
D) Tests of the additions to property, plant and equipment by physical inspection
C) Test of the signatures on canceled checks to the board of directors authorizations.
An "integrated audit" as stated in the Section 404 of the Sarbanes-Oxley Act means:
A) the auditor must consider the integrated thoughts and ideas of everyone on the audit staff.
B) The auditor must conduct two audits, one on the effectiveness of the internal control and one on the financial statements, in an integrated way.
C) The auditor must integrate the same objectives whether auditing internal control or auditing the financial statements.
D) two independent CPA firms must work together on the audit.
B) The auditor must conduct two audits, one on the effectiveness of the internal control and one on the financial statements, in an integrated way.
Proper monitoring within an internal control framework may include all of the following except:
A) external auditor
B) effective audit committee
C) internal audit function
D) internal revenue service
D) internal revenue service
Indeterming whether transactions have been recorded, the direction of the audit testing should start from the:
A) general ledger balances
B) adjusted trial balance
C) original source documents
D) general journal entries
C) original source documents
Managements attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entities control environment when:
A) external policies established by parties outside the entity affect its accounting practices
B) management is dominated by one individual
C) internal audit personnel have direct access to the board of directors and the entity's management
D) the audit committee is active in overseeing the entity's financial reporting policies
B) management is dominated by one individual
Which of the following concerning the auditors report on internal control over financial reporting is correct?
A) The auditors report contains an opinion on the effectiveness of internal control over financial reporting based on the auditor's independent work
B) In the report on internal control over financial reporting, the auditor can issue only qualified or an unqualified opinion.
C) The auditor needs to state managements assessment of internal control over financial reporting, but does not necessarily need to comment on whether he or she agrees.
D) an Unqualified opinion is required if a material weakness is identified.
A) The auditors report contains an opinion on the effectiveness of internal control over financial reporting based on the auditor's independent work
An auditor performing an audit of internal control over financial reporting would be required to:
A) rely on the work of internal auditors
B) test all of the entity's internal controls
C) form an opinion on the effectiveness of internal control
D) randomly identify accounts for an audit of internal control
C) form an opinion on the effectiveness of internal control
Chapter 7