Deck 8: Execution of the Audit Testing of Controls

Question 1

Manual controls:

A)can be classified as program change controls or logical access controls.
B)generally rely on the client's IT applications in some way.
C)support the ongoing functioning of the programmed aspects of prevent and detect controls.
D)do not rely on the client's IT environment for their operation.

Answer 1

D

Question 2

Controls can be classified as:

A)manual controls.
B)information technology general controls.
C)automated controls.
D)All of the above.

Answer 2

D

Question 3

The more complex the client's operations and its internal controls,the less experienced the auditor who performs the work needs to be.

Answer 3

False

Question 4

Attribute sampling is a sampling technique used to reach a conclusion about the total dollar amount of misstatement in an account balance.

Question 5

Enquiry involves the auditor observing the actual control being performed.

Question 6

If the tests of controls confirm the auditor's preliminary evaluation of controls,the planned substantive audit procedures are not modified.

Question 7

The greater the degree of reliance on an internal control,the less they test the control to provide the required assurance.

Question 8

A computer program that will not allow a sale to be processed if a customer has exceeded their credit limit is an example of a:

A)detect control.
B)prevent control.
C)test of controls.
D)substantive procedure.

Question 9

The purpose of prevent controls is to discover fraud or errors that may have occurred during transaction processing and to rectify those errors.

Question 10

Transaction-level controls are implemented by businesses to reduce the risk of misstatements due to error or fraud and to ensure that processes are operating effectively.

Question 11

Benchmarking is an audit strategy that can be used to carry forward the benefit of certain application controls testing into future audit periods.

Question 12

Tracing certain amounts on the bank reconciliation to the accounting records is an example of inspection of physical evidence.

Question 13

Which of the following is an example of a detect control?

A)Amounts are not able to be paid to employees without first matching a valid tax file number to the employee master file.
B)Account coding on purchase orders being checked by the computer to a table of valid account numbers.
C)Quarterly reviews of credit balances in accounts receivable to determine their causes.
D)None of the above.

Question 14

Which of the following is an example of a prevent control?

A)Sales invoices are automatically priced using the information in the price master file.
B)Management level reviews of actual performance versus budgets.
C)Credit manager following up on an exception report showing sales made to a customer who has exceeded their credit limit.
D)A bank reconciliation.

Question 15

To improve efficiency,auditors test only those controls that they believe are critical to their opinion.

Question 16

An example of a purely manual control is a locked stock cage for high dollar-value items.

Question 17

If inherent risk is low and a reasonable level of assurance has been gained from controls testing,extensive substantive procedures need to be performed to estimate the dollar value of any error in an account balance.

Question 18

Re-performance involves the auditor re-performing the control to test its effectiveness.

Question 19

IT general controls are driven by the particular software application being used.

Question 20

Tests of account balances can often provide evidence about the continued functioning of controls.

Question 21

The Committee of Sponsoring Organisations (COSO)of the Treadway Commission has produced guidance for designing and implementing effective internal controls.The 2013 framework is expected to help organisations adapt their internal control to changing business conditions.Another recent COSO publication provides guidance for organisations using cloud computing to meet their technology needs.Explain the various aspects of this guidance and critically evaluate its impact at enhancing internal controls within companies using cloud computing.

Question 22

Benchmarking is appropriate when:

A)the application is stable.
B)a reliable trail of program changes exists.
C)a programmed control can be matched to a defined program within an application.
D)All of the above.

Question 23

The Australian Securities and Investments Commission (ASIC)inspects audit firms' compliance with audit quality and auditor independence requirements.Explain the process used by ASIC in conducting these inspections and critically evaluate their effectiveness at enhancing audit quality.

Question 24

The factors to consider when deciding the extent of testing of controls include which of the following?

A)How often the control is performed
B)The persuasiveness of the evidence produced by the control
C)The degree to which the auditor intends to rely on the control as a basis for limiting their substantive tests
D)All of the above

Question 25

What are the factors considered by auditors in determining whether there is a need for additional detailed tests of controls?

Question 26

Tracing certain amounts on the bank reconciliation to the accounting records is an example of which technique for testing controls?

A)Inspection of physical evidence
B)Observation
C)Enquiry
D)Re-performance

Question 27

Which of the following would not be included in a test of control working paper?

A)The work performed
B)The purpose of the test
C)A conclusion about whether the account balance is materially misstated
D)The findings/results of the testing

Question 28

If the tests of controls confirm the auditor's preliminary evaluation of controls,the planned substantive audit procedures are:

A)reduced.
B)increased.
C)not modified.
D)changed.

Question 29

In trying to determine whether there is a need for additional detailed tests of controls,which of the following factors are considered?

A)Results of enquiries and observations
B)Evidence provided by other tests
C)Changes in the overall control environment
D)All of the above

Question 30

When the auditor decides to include controls testing in their audit strategy,they select those controls that:

A)provide no assurance that the controls operated effectively throughout the period of reliance.
B)are the easiest to test.
C)provide the most efficient and effective audit evidence.
D)provide the least efficient and effective audit evidence.

Question 31

What are the main items commonly included in tests of controls working papers?

Question 32

Explain and provide examples of the various techniques commonly used when testing controls.

Question 33

Tests of controls will usually be carried out:

A)only by the audit engagement partner.
B)at an interim date.
C)only after year-end.
D)by the client's board of directors.

Question 34

ASA 230 Audit Documentation requires auditors to document each stage of the audit in their working papers.What are the specific requirements in ASA 230 regarding the contents of working papers and explain the importance of auditors effectively documenting the tests of controls that they have performed?

Question 35

A sampling technique used to reach a conclusion about a population in terms of a rate of occurrence is known as:

A)attribute sampling.
B)dollar unit sampling.
C)random sampling.
D)haphazard sampling.

Question 36

Tests of controls do not include which of the following auditing techniques?

A)Enquiry
B)Re-performance
C)Confirmation
D)Observation

Question 37

Enquiry involves the auditor:

A)the auditor observing the actual control being performed.
B)using questioning skills to determine how the control is completed and whether it appears to have been carried out properly and on a timely basis.
C)re-performing the control to test its effectiveness.
D)testing the physical evidence to verify that a control has been performed properly.

Question 38

Explain the differences between prevent controls and detect controls.

Question 39

If inherent risk is high and no assurance has been obtained from controls testing:

A)extensive substantive procedures need to be performed to estimate the dollar value of any error in the account balance.
B)only overall analytical review procedures need to be performed to reduce detection risk to an acceptable level.
C)no further substantive testing needs to be performed.
D)None of the above.

Question 40

An example of a program change control is:

A)program change forms must be authorised by the IT manager.
B)the accounts receivable clerk does not have access to the cash payments application.
C)regular and timely back-ups of data.
D)All of the above.