Deck 9: Control Assessment and Testing

Question 1

What are the most cost-effective types of controls over data?

A) Design controls.
B) Batch controls.
C) Input controls.
D) Monitoring controls.

Answer 1

C

Question 2

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

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

Answer 2

C

Question 3

One control benefit of an IT system 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

Answer 3

D

Question 4

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 5

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 few years

Question 6

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 7

The internal control objective of ensuring that all sales on credit are recorded in accordance with GAAP is ________.

A) accuracy
B) classification
C) accounting
D) proper period

Question 8

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

Question 9

Before concluding on the effectiveness of a control, an auditor must 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 10

One of the auditor's primary concerns 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 11

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) An audit procedure carried out at the planning stage of an audit.

Question 12

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

A) all nontrivial misstatements are communicated to management in writing
B) all nontrivial misstatements and possible illegal acts are communicated to management
C) all serious control risks uncovered are communicated to management in writing
D) only frauds and illegal acts are communicated to management

Question 13

Key controls are those ________.

A) over significant risks
B) over physical access
C) on which the auditor intends to rely
D) designed by the audit committee to prevent management fraud

Question 14

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 15

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 16

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

Question 17

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 18

At the planning stage, the auditor's goal is to ________.

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

Question 19

Which of the following is true regarding the financial 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 20

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 21

The objective of control procedures is to process transactions correctly.

Question 22

List and give some examples of five security components of a well-designed IT system.

Question 23

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

Question 24

A clean audit is normally associated with weak controls.

Question 25

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

Question 26

An auditor is required to obtain a sufficient understanding of internal control to plan the audit. This requirement encompasses obtaining an understanding of the control environment, the accounting system, and the control policies and procedures.
Required:

A) What are some of the reasons for obtaining an understanding of an audit client's internal control?
B) What audit work is required for an auditor to be able to assess control risk below maximum?
C) Should an auditor always try to obtain enough evidence to be able to assess control risk below maximum? Explain.

Question 27

For audits of financial institutions, auditors have a well-being reporting requirement. List four matters that must be reported under federal institutions legislation.

Question 28

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

Question 29

What internal control objective is affected by cut off errors? Why are they of such concern to auditors?

Question 30

Intent is something that the auditor can observe and use in deciding whether a misstatement is an error or a fraud.

Question 31

All audit engagements require some minimal reliance on internal controls.

Question 32

Control activities are often designed to speed processing of transactions.

Question 33

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

Question 34

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

Question 35

Below are the six internal control objectives.

A) Validity
B) Completeness
C) Authorization
D) Accuracy
E) Classification
F) Proper period cutoff
For each of the following control procedures, identify the internal control objective that applies and place the correct letter in the space provided.
____ 1. Match shipping documents to sales invoices before recording the transaction in the sales journal.
____ 2. Ensure that the sales invoices are recorded in the correct month.
____ 3. The sales manager must approve any discounts taken after the discount period.
____ 4. Compare the quantity shipped per the shipping documents to the quantity billed per the sales invoice, check prices to approved price lists, and recalculate extensions and totals before the recording the sale.
____ 5. Account for numerical sequence of pre-numbered shipping documents.

Question 36

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

Question 37

The most important feature of control is the documentation of the policies and procedures.

Question 38

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

Question 39

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

Question 40

Control tests and substantive tests of balances are easily distinguishable.