1. The primary responsibility for establishing and maintaining an internal control rests with

a. The external auditorsb. The internal auditorsc. Management and those charged with governanced. The controller or the treasurer

2. The fundamental purpose of an internal control is toa. Safeguard the resources of the organizationb. Provide reasonable assurance that the objectives of the organization are achievedc. Encourage compliance with organization objectivesd. Ensure the accuracy, reliability, and timeliness of information

3. Which of the following is not one of the three primary objectives of effective internal control?

a. Reliability of financial reportingb. Efficiency and effectiveness of operationsc. Compliance with laws and regulationsd. Assurance of elimination of business risk

4. Which of the following internal control objectives would be most relevant to the audit?a. Operational objectiveb. Compliance objectivec. Financial reporting objectived. Administrative control objective

5. Which statement is correct concerning the relevance of various types of controls to a financial audit?

a. An auditor may ordinarily ignore a consideration of controls when a substantive audit approach is taken

b. Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit but other controls may also be relevant

c. Controls over safeguarding of assets and liabilities are of primary importance, while controls over the reliability of financial reporting may also be relevant

d. All controls are ordinarily relevant to an audit.

6. An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the

a. Efficiency of management’s decision-making processb. Appropriate prices the entity should charge for its productsc. Methods of assigning production tasks to employeesd. Entity’s ability to process and summarize financial data

7. In an audit of financial statements, an auditor’s primary consideration regarding an internal control activity is whether the control

a. Reflects management’s philosophy and operating styleb. Affects management’s financial statement assertionc. Provides adequate safeguards over access to assetsd. Enhances management’s decision-making process

8. Two key concepts that underlie management’s design and implementation of internal control are:

a. Costs and materialityb. Absolute assurance and costsc. Inherent limitations and reasonable assuranced. Collusion and materiality

9. Internal control can provide only reasonable assurance of achieving entity’s control objectives. One factor limiting the likelihood of achieving those objectives is that

a. The auditor’s primary responsibility is the detection of fraudb. The board of directors is active and independentc. The cost of internal control should not exceed its benefitsd. Management monitors internal control

10. An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

a. Collusionb. A material weaknessc. A control deficiencyd. A significant deficiency

11. Inherent limitations in an internal control must be considered in evaluating its effectiveness in preventing and detecting errors and fraud. Inherent limitations do not include

a. Misunderstanding of instructions, mistakes of judgment, personal carelessness, distraction, or fatigue.

b. Incompatible functions performed by the same person.c. Collusion among employees.d. Management override of certain policies or procedures.

12. Which of the following best describes an inherent limitation that should be recognized by an auditor when considering the potential effectiveness of an internal control structure?

a. Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion.

b. The competence and integrity of client personnel provide an environment conducive to control and provides assurance that effective control will be achieved.

c. Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against fraud perpetrated by management.

d. The benefits expected to be derived from effective internal control usually do not exceed the cost of such control.

13. When considering the effectiveness of a system of internal control, the auditor should recognize that inherent limitations do exist. Which of the following is an example of an inherent limitation in a system of internal accounting control?

a. The effectiveness of procedures depends on the segregation of employee duties.b. Procedures are designed to assure the execution and recording of transactions in

accordance with management’s authorization.c. In the performance of most control procedures, there are possibilities of errors

arising from mistakes in judgment.d. Procedures for handling large numbers of transactions are processed by electronic

data processing equipment.

14. An effective system of internal controla. Cannot be circumvented by managementb. Can reduce the cost of an external auditc. Can prevent collusion among employeesd. Eliminates risks and potential loss to the organization

15. Internal controls are not designed to provide reasonable assurance that:a. All frauds will be detectedb. Transactions are executed in accordance with management’s authorizationc. Access to assets is permitted only in accordance with management’s authorizationd. Company personnel comply with applicable rules and regulations

16. The internal control cannot be designed to provide reasonable assurance that:a. Transactions are executed in accordance with management’s authorizationb. Fraud will be eliminatedc. Access to assets is permitted only in accordance with management’s authorizationd. The recorded accountability for assets is compared with the existing assets at

reasonable intervals

17. Which of the following statements about internal control is correct?a. Properly maintained internal control reasonably ensures that collusion among

employees cannot occur.b. The establishment and maintenance of internal control are important

responsibilities of the internal auditor.c. Exceptionally strong internal control is enough for the auditor to eliminate

substantive tests on a significant account balance.d. The cost-benefit relationship is a primary criterion that should be considered in

designing internal control.

18. Which of the following is correct about internal control?a. Accounting and internal control systems provide management with conclusive

evidence that objectives are reached.b. One of the inherent limitations of accounting and internal control systems is the

possibility that the procedures may become inadequate due to changes in conditions, and compliance with procedures may deteriorate.

c. Most internal controls tend to be directed at non-routine transactions.d. Management does not consider costs of the accounting and internal control systems.

19. Internal control, no matter how well designed and operated can only provide an entity with reasonable assurance about achieving the entity’s objectives. The likelihood of achievement is affected by limitations inherent to internal control. These limitations don not include:

a. Collusion among employeesb. Inappropriate management override of internal controlc. Human failuresd. Incompatible functions

20. Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the:

a. Adequacy of the computer systemb. Proper implementation by managementc. Ability of the internal audit staff to maintain itd. Competency and dependability of the people using it

21. Which of the following best describes the interrelated components of internal control?a. Organizational structure, management, philosophy, and planningb. Control environment, risk assessment, control activities, information and

communication systems, and monitoringc. Risk assessment, back up facilities, responsibility accounting, and natural laws.d. Internal audit and management’s philosophy and operating style.

22. Which of the following is not one of the components of an entity’s internal control?a. Control riskb. Control activitiesc. Information and communicationd. The control environment

23. The overall attitude and awareness of an entity’s board of directors concerning the importance of the internal control usually is reflected in its

a. Computer-based controlsb. System of segregation of dutiesc. Control environmentd. Safeguards over access to assets

24. When obtaining an understanding of an entity’s control environment, an auditor should concentrate on the substance of management’s policies and procedures rather than their form because

a. The auditor may believe that the policies and procedures are inappropriate for that particular entity

b. The board of directors may not be aware of management’s attitude toward the control environment

c. Management environment may establish appropriate policies and procedures but not act on them

d. The policies and procedures may be so ineffective that the auditor may assess control risk at a high level

25. Basic to a proper control environment are the quality and integrity of personnel who must perform the prescribed procedures. Which is not a factor in providing for competent personnel?

a. Segregation of dutiesb. Hiring practicesc. Training programsd. Performance evaluations

26. In evaluating the design of the entity’s internal control environment, the auditor considers the certain subcomponents of control environment and how they have been incorporated into the entity’s processes. Subcomponents of control environment would not include

a. Integrity and ethical valuesb. Commitment to competencec. Organizational structured. Information and communications system

27. It is important for the auditor to consider the competence of the audit client’s employees, because their competence bears directly and importantly upon the

a. Cost-benefit relationship of internal controlb. Achievement of the objectives of internal controlc. Comparison of recorded accountability with assetsd. Timing of the tests to be performed

28. Which of the following components of an entity’s internal control structure includes the development of employee promotion and training policies?

a. Control activitiesb. Control environmentc. Information and communicationd. Quality and control system

29. Which of the following subcomponents of the control environment define the existing lines of responsibility and authority?

a. Organizational structureb. Management philosophy and operating stylec. Human resource policies and practicesd. Management integrity and ethical value

30. Which of the following is not one of the subcomponents of the control environment?a. Management’s philosophy and operating styleb. Organizational structurec. Adequate separation of dutiesd. Commitment to competence

31. Management philosophy and operating style most likely would have a significant influence on an entity’s control environment when

a. The internal auditor reports directly to management.b. Management is dominated by one individualc. Accurate management job descriptions delineate specific duties.d. The audit committee actively oversees the financial reporting process.

32. A proper segregation of duties requires a. An individual authorizing a transaction records itb. An individual authorizing a transaction maintains a custody of the asset that

resulted from the transaction.c. An individual maintaining custody of an asset be entitled to access the accounting

records for the assetd. An individual recording a transaction not compare the accounting record of the

asset with the asset itself

33. The single most effective control procedure established to avoid allowing any person to be in a position to perpetrate and then conceal errors or fraud isa. The separation of the functional responsibilities custodianship, record keeping,

operation, and authorization.b. Require each employee to take a vacation each yearc. Establish an internal audit departmentd. Require the bonding of personnel in positions that necessitate handling of cash and

other universally desirable valuables

34. Which of the following statements is most correct with respect to separation of duties?a. Employees should not have temporary and permanent custody of assetsb. Employees who authorize transactions should not have custody of related assetsc. It is permissible to allow an employee to open cash receipts and record those

receipts.d. Employees who authorize transactions should have recording responsibility for these

transactions.

35. Which of the following would contribute most to the safeguarding of assets?a. Access to computer facilities and records is limited to authorized personnel.b. Training programs are conducted to develop competence of newly hired personnel.c. Control and subsidiary accounts are reconciled on a regularly scheduled basis.d. Blank stock of all purchase orders and sales invoices are pre-numbered

36. Accounting information system:

Initiates transactions Processes transactions Monitors transactions

a. Yes Yes Yesb. Yes Yes Noc. No Yes Nod. No No Yes

37. Which of the following statements best describes the entity’s risk assessment process?

a. Entity’s process of identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks.

b. Entity’s assessment of audit risks affecting the financial statementsc. Entity’s process of evaluating the risks of misstatements due to fraud.d. Entity’s assessment of risks that internal control may fail to detect misstatements

affecting the financial statements.

38. Which of the following deal with ongoing or periodic assessment of the quality of internal control by management?a. Quality control activitiesb. Monitoring activitiesc. Oversight activitiesd. Management activities

39. An entity’s ongoing monitoring activities often includea. Periodic audits by the audit committeeb. Reviewing the purchasing functionc. The audit of the annual financial statements.d. Control risk assessment in conjunction with quarterly reviews.

40. The policies and procedures that help ensure that management directives are carried out are referred to as the:a. Control environmentb. Control activities c. Monitoring of controlsd. Information system

41. Which of the following is not one of the specific control activities that are relevant to financial statement audit?a. Performance reviewsb. Physical controlsc. Segregation of dutiesd. Monitoring

42. Proper segregation of functional responsibilities in an effective structure of internal control calls for separation of the functions ofa. Authorization, execution, and paymentb. Authorization, recording, and custodyc. Custody, execution, and reportingd. Authorization, payment, and recording

43. Which of the following activities would be least likely to strengthen a company’s internal controla. Separating accounting from other financial operationb. Maintaining insurance for fire and theftc. Fixing responsibility for the performance of employee dutiesd. Carefully selecting and training employees

44. Which of the following best describes the purpose of control activities?a. The actions, policies and procedures that reflect the overall attitudes of managementb. The identification and analysis of risks relevant to the preparation of financial

statements.c. The policies and procedures that help ensure that necessary actions are taken in order

to achieve the entity’s objectivesd. Activities that deal with the ongoing assessment of the quality of internal control by

management

45. A small entity may use less formal means to ensure that internal control objectives are achieved. For example, extensive accounting procedures, sophisticated accounting records, or formal controls are least likely to be needed if.a. Management is closely involved in operationsb. The entity is involved in complex transactionsc. The entity is subject to legal or regulatory requirements also found in larger

entities.d. Financial reporting objectives have been established

46. Which of the following may represent the biggest challenge smaller public companies face in implementing effective internal control?a. A lack of expertiseb. Reduced importance c. Limited resources

d. Limited available guidance

Consideration of internal control

47. The auditor’s consideration of a company’s internal control is.a. Required under the Philippine Accountancy Actb. Required by PSAc. Required by the Code of Ethicsd. Recommended by the SEC

48. The auditors primary purpose in auditing the client’s system of internal control over financial reporting is:a. To prevent fraudulent financial statements from being issued to the public.b. To evaluate the effectiveness of the company’s internal controls over all relevant

assertions in the financial statementsc. To report to management that the internal controls are effective in preventing

misstatements from appearing on the financial statements.d. To efficiently conduct the audit of financial statements.

49. Auditing standards require the auditor to obtain an understanding of the client’s internal control structurea. For every auditb. For first time audits.c. Sufficient to find any frauds which may existd. Whenever it would be appropriate

50. When auditing a private company, the auditor should obtain an understanding of internal control sufficient to:a. Provide reasonable protection against client fraud and defalcations by client

employees.b. Assess control riskc. Provide a basis for suggestions to the client for improving the accounting systemd. Provide a method for safeguarding assets, checking the accuracy and reliability of

accounting data, promoting operating efficiency, and encouraging adherence to prescribed managerial policies.

51. Evaluating the design of the entity’s internal control would involvea. Considering whether the control, individually or in combination with other controls,

is capable of effectively preventing, or detecting and correcting, material misstatements.

b. Determining whether control exists and the entity is using it.c. Determining whether the control is operating effectively.d. Determining the consistency of application of internal control procedures

52. Obtaining knowledge about whether the control is implemented can best be obtained bya. Inquiry of client’s personnelb. Reading procedures manualc. Tracing transactions through the information system relevant to financial reporting.d. Performing tests of control

53. An auditor should consider two key issues when obtaining an understanding of a client’s internal controls. These issues are:a. The effectiveness and efficiency of the controlsb. The frequency and effectiveness of the controlsc. The design and implementation of the controlsd. The implementation and efficiency of the controls

54. The auditor uses his understanding of accounting and internal control systems together with the inherent and control risks assessments to perform all of the following excepta. Identify the types of misstatements that could occur b. Consider factors that affect the risk of material misstatementsc. Design appropriate audit proceduresd. Evaluate the effectiveness of the accounting and control systems

55. When obtaining an understanding of the accounting and internal control systems to plan the audit, the auditor should obtain knowledge about the

Design of the accounting and internal control systems

Operation of accounting and internal control systems

a. YES YESb. YES NOc. NO NO

d. NO YES

56. When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be:a. Tracingb. Vouchingc. Performing a walk-throughd. Testing controls

57. Which of the following statements is incorrect about walk-through tests?a. It involves tracing a few transactions through the accounting systemsb. This procedure may form part of test of control.c. The nature and extent of walk-through tests performed by the auditor are such that

they alone would provide sufficient appropriate audit evidence to support a low assessment of control risk.

d. This procedure is performed to determine whether the controls are being implemented.

58. The auditor’s understanding of the accounting and internal control systems significant to the audit is ordinarily obtained through previous experience with the entity. In addition, the auditor may perform the following procedures, excepta. Inquiries of appropriate management, supervisory and other personnel at various

organizational levels within the entity, together with reference to documentation, job descriptions and flow charts

b. Inspection of documents and records produced by the accounting and internal control system

c. Observation of the entity’s activities and operations, including observation of the organization of computer operations, management personnel and the nature of transaction processing.

d. Reperformance of internal control procedures.

59. When obtaining understanding of the entity’s internal control, the auditor should obtain knowledge about the system’s

Design Implementation Operating Effectivenessa. YES YES YESb. YES NO NOc. YES NO NOd. NO NO YES

60. Which of the following would an auditor least likely perform when obtaining understanding of the entity’s accounting and internal control systems?a. Inquiries of appropriate personnelb. Inspection of documents and recordc. Observation of the entity’s activities and operationsd. Performing analytical review procedures

61. After obtaining sufficient understanding of the entity’s accounting and internal control systems, the auditor should make a preliminary assessment ofa. Audit riskb. Control riskc. Inherent riskd. Detection risk

62. Which of the following is not a medium that can normally be used by an auditor to record information concerning a client’s internal control policies and procedures?a. Narrative memorandumb. Flowchartc. Procedures manuald. Questionnaire

63. The auditor observes client employees while gaining an understanding of the internal control structure toa. Prepare a flowchartb. Update information contained in the organization and procedure manuals

c. Gain knowledge of the design and application of relevant policies, procedures, and records relating to the control structure

d. Determine the extent of compliance with quality control standards

64. Which of the following statements regarding auditor’s documentation of the client’s internal control structure is correct?a. Documentation must include flowchartsb. Documentation must include procedural write-ups.c. No documentation is necessary although it is desirabled. No one particular form of documentation is necessary, and the extent of documentation

may vary

65. In gaining an understanding of the internal control structure, the auditor may trace several transactions through the control process. The primary purpose of this task is toa. Replace substantive testsb. Detect fraudc. Determine the effectiveness of the control proceduresd. Determine whether the controls have been placed in operation

66. The conclusion reached as a result of assessing control risk is referred to as the:a. Assurance provided by internal control structureb. Determined level of acceptable detection riskc. Product of the understanding of internal controld. Assessed level of control risk

67. An auditor assesses control risk because ita. Is relevant to the auditor’s understanding of the control environmentb. Provides assurance that the auditor’s materiality levels are appropriatec. Indicates to the auditor where inherent risk may be the greatestd. Affects the level of detection risk that the auditor may accept

68. When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increases thea. Extent of tests of controlsb. Level of detection riskc. Extent of test of detailsd. Level of inherent risk

69. An auditor uses the knowledge provided by the understanding of the internal control and the assessed level of the risk of material misstatement primarily toa. Determine whether procedures and records concerning the safeguarding of assets are

reliable.b. Ascertain whether the opportunities to allow any person to both perpetrate and conceal

fraud are minimizedc. Modify the initial assessments of inherent risk and preliminary judgments about

materiality levels.d. Determine the nature, timing and extent of substantive tests for financial statements

assertions.

70. Which of the following statements concerning control risk is correct?a. Assessing control risk and obtaining an understanding of an entity’s internal control

structure may be performed concurrentlyb. When control risk is at a high level, an auditor is required to document the basis for

that assessmentc. Control risk may be assessed sufficiently low to eliminate substantive testing for

significant transaction classesd. When assessing control risk, an auditor should not consider evidence obtained in prior

audits about the operation of control procedures.

71. Which of the following is a step in an auditor’s decision to assess control risk at a less than high level?a. Apply analytical procedures to both financial data and nonfinancial information to

detect conditions that may indicate weak controlsb. Perform tests of details of transactions and accounts balances to identify potential

errors and fraudc. Identify specific internal control policies and procedures that are likely to detect

or prevent material misstatementsd. Documents that the additional audit effort to perform tests of controls exceeds the

potential reduction in substantive testing

72. If, after obtaining an initial understanding of a client’s internal control, the auditor wishes to further reduce the assessed level of control risk relating to plant asset transactions, the auditor should nexta. Make extensive substantive test of plant asset balancesb. Establish the physical existence of current year additionsc. Complete the plant asset section of the internal accounting control questionnaired. Further test those internal control procedures relating to processing and recording

plant asset transactions

73. An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing and extent of thea. Attribute testsb. Test of controlsc. Compliance testsd. Substantive tests

74. Control testing is performed in order to determine whether or nota. The assessed level of control risk can be reducedb. Necessary controls are absentc. Incompatible function existd. Material peso error exist

75. Tests of controls do not includea. Reperformace of internal control proceduresb. Inquiries about, and observation of, internal control which leave no audit trailc. Inspection of documentary support for transactions evidencing authorizationd. Analytical procedures involving comparison of operating expenses with budgeted amounts

76. To obtain evidential matter about control risk, an auditor selects tests from a variety of techniques includinga. Inquiryb. Analytical proceduresc. Calculationd. Confirmation

77. For certain controls, such as segregation of duties, documentary evidence may not exist. An auditor would most likely test the procedures bya. Reperformance and corroborationb. Observation and inquiryc. Inspection and vouchingd. Confirmation and recomputation

78. Audit evidence concerning proper segregation of duties normally is best obtained by:a. Direct personal observation of the employee who applies control proceduresb. Making inquiries of co-workers about the employee who applies control proceduresc. Preparation of a flowchart of duties performed and available personneld. Inspection of third-party documents containing the initials of who applied control

procedures

79. Based on a study and evaluation completed at an interim date, the auditor concludes that no significant internal accounting control weaknesses exist. The records and procedures would most likely be tested again at year-end ifa. Compliance tests were not performed by the internal auditor during the remaining

periodb. The internal accounting control system provides a basis for reliance in reducing the

extent of substantive testing.c. The auditor used non-statistical sampling during the interim period compliance testingd. Inquiries and observations lead the auditor to believe that conditions have changed

80. Before relying on the system of internal control, the auditor obtains a reasonable degree of assurance that the internal control procedures are in use and operating as planned. The auditor obtains this assurance by performing planneda. Substantive testsb. Tests of controlsc. Transaction testsd. Tests of trends and ratios

81. After obtaining an understanding of the internal control structure and assessing control risk, an auditor decided to perform tests of controls. The auditor most likely decided that

a. It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests

b. Additional evidence to support further reduction in control risk is not availablec. An increase in the assessed level of control risk is justified for certain financial

statement assertionsd. There were many internal control weaknesses that could allow errors to enter the

accounting system

82. After studying and evaluating a client’s existing internal control, an auditor has concluded that the policies and procedures are well designed and functioning as intended. Under these circumstances, the auditor would most likelya. Perform further control tests to the extent outlined in the audit program.b. Determine the control policies and procedures that should prevent or detect errors and

fraud.c. Set detection risk at a higher level than would be set under conditions of weak

internal controld. Set detection risk at a lower level than would be set under conditions of weak

internal control.

83. After considering a client’s internal control, an auditor has concluded that the system is well designed and is functioning as anticipated. Under these circumstances, the auditor would most likelya. Cease to perform further substantive testsb. Not increase the extent of planned substantive testsc. Increase the extent of anticipated analytical proceduresd. Perform all tests of controls to the extent outlined in the pre-planned audit program

84. After considering internal control, an auditor might decide toa. Increase the extent of tests of controls and substantive tests in areas where internal

control is strongb. Increase the extent of substantive tests in areas where internal control is weakc. Reduce the extent of tests of controls in areas where internal control is strongd. Reduce the extent of both substantive tests and tests of controls in areas where

internal control is strong

85. The auditor would most likely assess control risk at a high level whena. It would be efficient to perform test of controlb. The entity’s accounting and internal control systems are not reliablec. The auditor wishes to rely on the entity’s accounting and internal control systemsd. The auditor wants to restrict substantive tests

86. The primary emphasis by auditors is on controls overa. Classes of transactionsb. Account balancesc. Both A and B, because they are equally importantd. Both A and B, because they vary from client to client

87. When obtaining audit evidence about the effective operation of internal controls, the auditor considers all of the following excepta. How they were appliedb. The consistency with which they were applied during the periodc. By whom they were appliedd. Why they were applied

88. When control risk is assessed at a high level, the auditor should document his

Understanding of internal control components

Conclusion that control risk is at a high level

Basis for concluding that control risk is at a high level

a. YES YES YESb. YES YES NOc. YES NO NOd. NO YES NO

89. When control risk is assessed at less than high level, the auditor should document his

Understanding of internal control components Basis for assessing control risk at less than high level

a. YES YESb. YES NO

c. NO YESd. NO NO

90. The auditor will perform tests of controls when controls are initially assessed as:

Low Moderate Higha. YES YES YESb. YES NO YESc. NO YES NOd. YES YES NO

91. Which of the following may not be required on a particular audit of a company?a. Tests of controlsb. Analytical proceduresc. Substantive proceduresd. Risk assessment procedures

92. Control risks should be assessed in terms ofa. Specific controlsb. Types of potential fraudc. Control environment factorsd. Financial statement assertions

93. After assessing control risk, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whethera. The entity’s controls have been implemented b. The entity’s controls pertain to any financial statements assertionsc. It would be efficient to obtain an understanding of the entity’s information systemd. Additional audit evidence sufficient to support a further reduction is likely to be

available

94. Based on the requirement of PSA 330, how frequently must an auditor test operating effectiveness of controls that appear to functions as they have in past years and on which the auditor wishes to rely in the current year?a. Monthlyb. Each auditc. at least every second auditd. at least every third audit

95. Before assessing control risk at a level lower than the maximum, the auditor obtains reasonable assurance that controls are in use and effectively. This assurance is most likely obtained in part by a. Preparing flowcharts b. Performing substantive tests.c. Analyzing tests of threads and ratiosd. Inspection of documents

96. An auditor generally tests the segregation of duties related to inventory bya. Personal inquiry and observationb. Test counts and cutoff proceduresc. Analytical procedures and invoice recomputationd. Document inspection and reconciliation

97. The auditor may decide to perform some tests of control during an interim visit in advance of the period end. However, the auditor cannot rely on the results of such test without considering the need to obtain further audit evidence relating to the remainder of the period. Factors to be considered in deciding whether to perform tests of controls for the remaining period would not includea. The results of the interim testsb. The length of remaining periodc. Whether any changes have occurred in the accounting and internal control systems

during the remaining periodd. The results of substantive tests

98. Which of the following is correct when the auditor assess control risk at a high level?a. The auditor should document the basis for his assessmentb. The auditor should perform tests of controlsc. The auditor should document his conclusion that control risks is at a high leveld. The auditor need not document his understanding of internal control

99. The auditor ordinarily assesses control risk at a high level for some or all assertions when

The entity’s internal control is effective Evaluating the effectiveness of the control would not be efficient

a. YES YESb. YES NOc. NO NOd. NO YES

100. The objective of tests of details of transactions performed as tests of controls is toa. Monitor the design and use of entity documents such as prenumbered shipping formb. Determine whether controls have been placed in operationc. Detect material misstatements in the account balances of the financial statementsd. Evaluate whether controls operated effectively

101. Tests of controls are designed to obtain evidence to support the auditor’s assessment of control riska. At a high levelb. At less than high levelc. At zero leveld. At the maximum level

102. An auditor is likely to use four types of procedures to support the operating effectiveness of internal controls. Which of the following would generally NOT be used?a. Make inquiries of appropriate client personnelb. Examine documents, records, and reportsc. Reperform client proceduresd. Inspect the design of documents

103. Material weaknesses in internal control of a public company must be reported in writing to which of the following?a. The SECb. Members of the management who are responsible for the related area of the companyc. Audit committee of the company’s board of directorsd. The PICPA

104. When a compensating control exists, the absence of a key control:a. Is no longer a concern because there is no longer a significant deficiency or material

weaknessb. Is still a major concern to the auditorc. Could cause a material loss, so it must be tested using substantive proceduresd. Is magnified and must be removed from the sampling process and examined in its

entirety

105. In general, a material weakness in internal control may be defined as a condition in which material errors or irregularities may occur and not be detected within a timely period bya. An independent auditor during tests of controlsb. Management when reviewing interim financial statements and reconciling account

balancesc. Employees in the normal course of performing their assigned functionsd. Outside consultants who issue a special-purpose report on internal control structure

106. A consideration of internal control made during an audit is usually not sufficient to express an opinion on an entity’s controls becausea. Weaknesses in the system may go unnoticed during the audit engagementb. A consideration of internal control is not necessarily made during an audit engagementc. Only those controls on which an auditor intends to rely are reviewed, tested and

evaluatedd. Controls can change each year

107. During the consideration of internal control in a financial statement audit, an auditor is not obligated toa. Search for significant deficiencies in the operation of the internal controlb. Understand the internal control and the information systemc. Determine whether the control activities relevant to audit planning have been

implementedd. Perform procedures to understand the design of internal control

108. The management letter is useda. To allow management to corroborate oral representations to the auditorb. To confirm the terms of the audit engagementc. To document the auditor’s consideration of internal controlsd. To make recommendations to the client based on observations made during the audit.