question

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except:

answer

PRESENT AN ORAL ASSESSMENT OF THE EFFECTIVENESS of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year.

question

An "integrated audit" as stated in Section 404 of the Sarbanes-Oxley Act means

answer

The auditor must CONDUCT TWO AUDITS, one on the effectiveness of internal control and one on the financial statements, in an integrated way.

question

Section 404 of the Sarbanes-Oxley Act requires the auditor to provide which of the following:

answer

Reasonable assurance on BOTH THE FINANCIAL STATEMENTS AND INTERNAL CONTROL.

question

According to the PCAOB, who is responsible for the reliability of the internal controls over financial reporting process of an entity?

answer

The entity's CEO and/or CFO.

question

The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. This is an example of

answer

A deficiency in OPERATION.

question

A deficiency that implies that there is a reasonable possibility of misstatement in the financial statements that is significant but not material is

answer

A SIGNIFICANT deficiency.

question

Which of the following is not a topic that requires special consideration by management during management's internal control assessment process and by the auditor during the audit of internal control?

answer

The role of the auditor in internal control.

question

Management documentation should include all of the following except:

answer

Documentation regarding the AUDITOR'S EVALUATION OF INTERNAL CONTROLS.

question

Which of the following is not a primary objective of internal control as established by COSO?

answer

Effective PURCHASING SYSTEMS.

question

The main goal of auditing internal control is

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To EVALUATE THE EFFECTIVENESS OF CONTROLS over all relevant financial statement disclosures in the financial statements.

question

An auditor performing an audit of internal control over financial reporting would be required to

answer

Form an opinion on the effectiveness of internal control.

question

In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except:

answer

All of these are required.

question

Which of the following is least likely to represent a material weakness in internal control for Flynt Corporation?

answer

Flynt Corporation's COMPUTER SYSTEMS WERE NOT WORKING PROPERLY for two days; consequently, employees needed to do all reconciliations manually.

question

S Associates has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management about internal control. Which of the following is true?

answer

S&H should CONSIDER THIS SITUATION A LIMITATION on the scope of the audit.

question

Public reporting on the effectiveness of internal control over financial reporting, as required by the Sarbanes-Oxley Act, includes

answer

A statement of MANAGEMENT'S RESPONSIBILITY FOR ESTABLISHING and maintaining adequate internal control over financial reporting.

question

Which of the following concerning the auditor's report on internal control over financial reporting is correct?

answer

The auditor's REPORT CONTAINS AN OPINION ON THE EFFECTIVENESS of internal control over financial reporting based on the auditor's independent work.

question

Prior to issuing a report on internal controls over financial reporting, an auditor is required to

answer

Communicate to management, in writing, all control deficiencies IDENTIFIED DURING THE AUDIT AND INFORM THE AUDIT COMMITTEE when such a communication has been made.

question

Which of the following is not true?

answer

The auditor SHOULD NOT COMMUNICATE WITH MANAGEMENT until the audit of internal control over financial reporting is finished.

question

An "integrated audit"

answer

Is COMPRISED OF AUDITS OF INTERNAL CONTROL over financial reporting and of financial statements.

question

The primary purpose of a generalized computer audit program is to allow the auditor to

answer

Independently process electronic data processing records.

question

Which of the following audit procedures would an auditor be least likely to perform using a generalized computer audit program?

answer

Investigating inventory balances for possible damaged goods.

question

The auditor is least likely to use generalized audit software to

answer

IDENTIFY MATERIAL WEAKNESSES in the entity's IT controls.

question

The five step process in the audit of ICFR includes

answer

IDENTIFY CONTROLS TO TEST using a top-down, risk-based approach.

question

Which of the following is an advantage of generalized computer audit packages?

answer

They can be USED FOR AUDITS OF ENTITIES that use differing IT equipment and file formats.

question

ACL is an example of

answer

Software that allows auditors to retrieve and evaluate data from entity systems.

question

The PCAOB's definition of internal control over financial reporting specifically mentions all of the following control activities except:

answer

The segregation of duties.

question

Which of the following is not an element of management's assessment process for the effectiveness of internal control?

answer

Obtaining the auditor's assessment of the internal control effectiveness.

question

Which of the following is true regarding management's documentation of internal controls?

answer

Some documentation should focus on controls DESIGNED TO DETECT FRAUD.

question

Which of the following statements is false?

answer

All controls relevant to financial reporting are accounting controls.

question

To obtain an understanding of significant processes and relevant subprocesses, auditors would be least likely to use which of the following techniques?

answer

Scanning.

question

Management's written representations concerning internal control are

answer

Signed by the CEO and CFO.

question

In the context of an audit of internal controls, the auditor must document all of the following except:

answer

TRANSCRIPTS OF THE AUDITOR'S DISCUSSION with management concerning the points at which misstatements could occur.

question

Examples of entity-level controls include

answer

All of these are examples of entity-level controls.

question

Which of the following statements included in management's assessment of the effectiveness of internal control over financial reporting would be considered acceptable for issuing an unqualified opinion?

answer

Disclosure of material weaknesses corrected during the period.

question

A modification of the standard report is required for all of the following conditions except:

answer

Management has concluded that internal controls are not effective.

question

AAA & Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting. AAA found a number of material weaknesses in the entity's internal control. LinktheEarth's management remediated all of the weaknesses that AAA found. However, the auditors did not have sufficient time to retest the controls. What report should AAA issue with regards to internal control over financial reporting at year-end?

answer

ADVERSE report.

question

According to the COSO definition of safeguarding of assets

answer

Controls over financial reporting are effective if they provide reasonable assurance that LOSSES ARE PROPERLY REFLECTED IN THE FINANCIAL STATEMENTS.

question

An auditor will use the IT test data method in order to gain certain assurances with respect to the

answer

Procedures contained within the program.

question

Which of the following is true of generalized audit software packages?

answer

THEY EACH HAVE THEIR OWN CHARACTERISTICS that the auditor must carefully consider before using in a given audit situation.

question

The advantages of generalized audit software include all of the following except

answer

It involves auditing while the data are being processed (real-time).

question

Section 404 of the Sarbanes-Oxley Act includes which of the following?

answer

A requirement that management of a publicly traded company ACCEPTS RESPONSIBILITY FOR ESTABLISHING AND MAINTAINING ADEQUATE INTERNAL CONTROLS.

question

For which of the following internal controls would an auditor be least likely to perform tests of internal controls closer to the "as of" date?

answer

AT THE END OF EACH DAY AT FEDERAL BANK, the total cash in the vault is reconciled with daily registers of deposits and withdrawals.

question

Which of the following is false?

answer

THE ABSENCE OF MISSTATEMENTS IN FINANCIAL STATEMENTS is considered convincing evidence that existing controls are effective.

question

When TESTING a computerized accounting system, which of the following is false regarding the test data approach?

answer

The test data MUST CONSIST OF ALL POSSIBLE valid and invalid conditions.

question

When an AUDITOR TESTS a computerized accounting system, which of the following is true of the test data approach?

answer

Test data are PROCESSED BY THE ENTITY'S COMPUTER PROGRAMS under the auditor's control.

question

Which of the following best illustrates the concept of sampling risk?

answer

A randomly chosen sample may not be representative of the population as a whole (regarding the characteristic being tested).

question

Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%. In the review of client invoices, Jones should use

answer

ATTRIBUTES sampling.

question

The tolerable deviation rate for a test of controls is generally

answer

HIGHER than the expected rate of deviations in the related accounting records.

question

The risk of incorrect acceptance relates to the

answer

EFFECTIVENESS of the audit.

question

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

answer

Does not support the AUDITOR'S PLANNED ASSESSED LEVEL OF CONTROL RISK when the true operating effectiveness of internal control justifies such an assessment.

question

For which of the following audit tests would an auditor most likely use attributes sampling?

answer

Inspecting employee time cards for proper approval by supervisors.

question

Harvey Jones, CPA, uses statistical sampling to test control procedures. What is a benefit of using statistical sampling?

answer

It PROVIDES A MEANS OF MATHEMATICALLY MEASURING the sampling risk that result from examining only a part of the data.

question

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was

answer

Initially concealed by a forged document.

question

An underlying feature of random-based selection of items is that each

answer

Item in the accounting population SHOULD HAVE AN OPPORTUNITY TO BE SELECTED.

question

An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the entity's internal control procedures. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the reasons for this limitation and

answer

Treat the missing check as a DEVIATION FOR THE PURPOSE OF EVALUATING THE SAMPLE.

question

An auditor is testing internal control procedures that are evidenced on an entity's vouchers. To select the vouchers for testing, the auditor obtains random numbers between the first and last voucher number in the period. If a random number matches the number of a voided voucher, that voucher ordinarily should be replaced by another voucher in the random sample if the voucher

answer

Has been properly voided.

question

Which of the following statements is correct concerning statistical sampling in compliance testing?

answer

The population size has LITTLE OR NO EFFECT ON DETERMINING SAMPLE SIZE except for very small populations.

Auditing Theory & Practice Part VI – Flashcards

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