Deck 9: Control Assessment and Testing

Question 1

Anyone who designs a processing system should ________.

A)not do the documentation
B)be independent of management
C)have access to the data so they can make the system more efficient
D)not do the technical programming work

Answer 1

D

Question 2

What is a "walk through" test?

A)A means of ensuring that transactions are processed as described in the control system flowchart.
B)A test of physical security over access to computer rooms.
C)A computer-assisted technique for processing client data on a different system.
D)A substantive audit procedure carried out at the planning stage of an audit.

Answer 2

A

Question 3

Inherent risk and control risk are often evaluated together,because _____.

A)They are essentially the same.
B)They are interrelated,as internal controls are typically developed in response to assessed inherent risks.
C)Both are inversely related to the amount of substantive testing performed.
D)Gathering Neither risk can be mitigated by the auditor.

Answer 3

B

Question 4

Monthly comparison of the accounts receivable control account balance to the total of customer balances from A/R subsidiary ledger is an example of what general control category?

A)Periodic comparison and reconciliation
B)Performance reviews
C)Supervision
D)Segregation of responsibilities

Question 5

Which of the following descriptions of job responsibilities reflects improper segregation of duties?

A)The person who handles receiving of goods also handles delivery of goods.
B)The person who inputs sales invoices also inputs purchase invoices.
C)The person who opens the mail is also the person who enters cash receipts.
D)The person who verifies the accuracy of payroll inputs also authorizes sales returns.

Question 6

When the assessed level of inherent risk for material misstatement is not high,but the control risk is,the audit plan should call for:

A)Gathering a relatively low level of substantive audit evidence.
B)Gathering a moderately persuasive level of planned substantive evidence.
C)Performing extensive tests of controls to reduce control risk to an acceptably low level.
D)Gathering a highly persuasive level of substantive evidence.

Question 7

At the planning stage,the auditor's primary goal when deciding on control reliance is to ________.

A)select the most inexpensive set of evidence-gathering techniques
B)maximize audit fees
C)select the most effective and efficient set of evidence-gathering techniques
D)minimize field work at remote locations

Question 8

Which of the following is true regarding the financial statement assertions?

A)All assertions can be proved using only substantive procedures,but it would be too costly.
B)Some assertions are virtually impossible to prove without some evaluation of control effectiveness.
C)Some assertions can be proved using only an evaluation of control effectiveness.
D)The evaluation of control effectiveness is only used because it is more efficient than using only substantive procedures.

Question 9

Validity refers to ________.

A)ensuring that transactions are not omitted from accounting records
B)ensuring that recorded transactions should have been recorded
C)ensuring that all recorded transactions have been approved before recording
D)ensuring that all recorded transactions have been recorded at the right dollar amount

Question 10

To track employee time worked,an audit client uses pre-numbered timecards and accounts for their numerical sequencing.This control procedure relates to which control objective?

A)Accuracy
B)Completeness
C)Validity
D)Classification

Question 11

Which of the following statements is true?

A)Testing of controls is the most cost-efficient way of designing each audit.
B)Substantive testing is the most cost-efficient way of designing each audit.
C)As the work of testing of controls increases,the cost of substantive work increases.
D)There is a point where further testing of controls becomes more expensive than performing substantive tests.

Question 12

One control benefit of an IT control is that it ________.

A)is efficient at processing large,unusual,or non-recurring transactions
B)can monitor the effectiveness of automated controls
C)adjusts rapidly to changing business processes
D)reduces the risk of controls being overridden

Question 13

The auditor's primary purpose for evaluating internal control is to ________.

A)help design of the final audit plan
B)help management design internal control systems
C)help judge how much control is necessary
D)help determine much business risk is acceptable

Question 14

The internal control objective of ensuring that all sales on credit are recorded at the proper dollar amounts is ________.

A)accuracy
B)classification
C)Completeness
D)proper period cut-off

Question 15

The internal control objective of accuracy is related to the financial statement assertion of ________.

A)occurrence
B)completeness
C)valuation
D)presentation

Question 16

Which internal control objectives relate to the financial statement assertion of valuation?

A)Validity,authorization,and proper period
B)Authorization,classification,and validity.
C)Completeness,accuracy,and proper period
D)Authorization,classification,and accuracy

Question 17

An auditor does not need to test ________.

A)control strengths because they are known to be strengths
B)control weaknesses because they are known to be weak
C)control strengths because they offset weaknesses
D)control weaknesses because they are offset by strengths

Question 18

An inherent weakness of all internal controls is:

A)They require highly educated people to implement.
B)Performing tests of controls is more costly than obtaining substantive evidence.
C)The potential for management to override them.
D)Each control costs more money to implement.

Question 19

An auditor is required to perform all but which of the following tasks in relation to the auditee's internal controls?

A)Obtain an understanding
B)Perform an evaluation
C)Document weaknesses
D)Design and implement

Question 20

The auditor's primary concern with regard to internal controls is ________.

A)the degree to which the internal controls are working as designed
B)the possibility of an inherent risk that has to be controlled
C)the impact the controls have on the accuracy of the accounting records
D)the amount of substantive work to be saved by testing controls instead

Question 21

The primary reason to evaluate internal controls is to formulate constructive suggestions for improvement.

Question 22

Which of the following is not a control risk associated with manual controls?

A)lower effectiveness for high-volume or recurring transactions
B)human error
C)Inappropriate manual intervention
D)relative ease of bypassing,ignoring,or overriding

Question 23

The auditor's control risk assessment will affect the procedures to be included in the audit.

Question 24

The CPA Canada Handbook section "CAS 265: Communicating Deficiencies in Internal Control to Those Charged with Governance and Management" requires that ________.

A)all misstatements are communicated to management in writing
B)all significant control deficiencies and other deficiencies the auditor deems of sufficient importance,should be communicated to management
C)only serious control risks uncovered are communicated to management in writing
D)only frauds and illegal acts are communicated to management

Question 25

Classification refers to ensuring that the accounting for transactions is in the period they occur.

Question 26

Control tests should be applied to samples of transactions and control procedures ________.

A)that occurred during the interim audit so that they provide direct auditor's knowledge
B)selected by management as being representative of all transactions processed
C)throughout the period being audited
D)that occur primarily close to reporting period ends such as year-end or quarter-end

Question 27

An auditor has uncovered suspicious expense reimbursements paid to the chief executive officer of its audit client.What should the auditor do?

A)Discuss the matter with the chief executive officer.
B)Report the matter in writing to the chief financial officer.
C)Report the matter in writing to the audit committee.
D)Report the matter in writing to the federal government.

Question 28

If there have been no changes to a control that a previous audit has found to be working effectively,________.

A)an auditor must still test the controls and not place reliance on the prior year's testing
B)an auditor must still test the controls but not to the same extent as the prior year's testing
C)an auditor can rely on the prior year's work and not test controls in the current year
D)an auditor can rely on the prior year's work but should test the controls every three years

Question 29

To reach a conclusion on the effectiveness of a control,an auditor must first determine ________.

A)the required degree of company compliance with control procedures
B)the maximum possible dollar amount that would not affect a user's decision based on the financial statements
C)the actual degree of company compliance with control procedures
D)the nature,extent,and timing of planned substantive procedures

Question 30

The most important aspect of a control is the people who perform it.

Question 31

An auditor should always check late entries in the accounting records with substantive procedures.

Question 32

General controls,like environmental controls,are primarily preventive in nature.

Question 33

Control weaknesses may be so serious that the issuance of an audit opinion is not possible.

Question 34

A clean audit is normally associated with weak controls.

Question 35

A duel-purpose test provides both control effectiveness evidence and substantive evidence.

Question 36

In general,a control deficiency will not affect control risk when ______.

A)The auditor is able to perform additional substantive tests.
B)it is not guaranteed that the absent control will cause a material misstatement.
C)the absent control has (a)compensating control(s)that effectively reduces
D)It is a dual purpose control

Question 37

If a control fails to prevent a sale from being recorded,it means the authorization control objective was not met

Question 38

Internal controls are put in place to keep the company on course toward achieving its goals.

Question 39

Controls such as those to protect inventory should be put in place no matter what the cost.

Question 40

The objective of application control procedures is to process transactions correctly.

Question 41

The greater the reliance placed on the effectiveness of a control,the greater the amount of testing of that control that should be performed.

Question 42

The primary disadvantage of using flowcharts to document the auditee's control systems is that they are difficult to customize.

Question 43

Identify three general categories of misstatements and give an example of each.

Question 44

An advantage of using a pre-printed audit questionnaire is that the auditor is less likely to forget to ask some important question.

Question 45

What effect does the auditee's use of a service organization have on the audit?

Question 46

The auditor's primary concern related to the auditee's IT is the impact it has on the risk of material misstatement.

Question 47

Why should an auditor not rely on substantive testing to the exclusion of testing internal controls?

Question 48

List and briefly explain some examples of general controls specific to IT.

Question 49

The required degree of control compliance is determined by management's control objectives.

Question 50

GAAS requires some minimal reliance on internal controls for all audits.

Question 51

A control test that consists of vouching sales returns to their related receiving reports,provides evidence of the completeness of recorded sales returns.