Question 1

The _______ clearly lays out the purpose of the test of the control, the nature and extent of the work performed at an interim date, the results of the audit tests, and the auditor's conclusion about control risk.
A)working paper
B)audit documentation
C)controls testing paper
D)audit report

Accepted Answer

The working paper is the correct answer because it is the document that contains the auditor's notes and conclusions about the audit procedures performed.

Question 2

The procedure that relies on the auditor testing the physical evidence to verify that a control has been performed properly is known as _______.

Accepted Answer

The answer of The procedure that relies on the auditor...

Question 3

In the given table, match the concepts related to control risks on the left with the descriptions on the right.

Accepted Answer

The answer of In the given table, match the concepts...

Question 4

Evaluate the following "procedures" section from a tests of controls working paper:
Work performed:
Selected several bank reconciliations from different months and matched to supporting documentation.Ensured the reconciliations had been prepared and reviewed on a timely basis.

Accepted Answer

The answer of Evaluate the following "procedures" section from a...

Question 5

The more complex the client's operations and its internal controls, _______.
A)the lower inherent risk is assessed by the auditor
B)the less audit staff should be assigned to the client engagement
C)the more experienced the auditor who performs the work needs to be
D)the more inexperienced the auditor who performs the work needs to be

Accepted Answer

The more complex the client's operations and internal controls, the more experienced the auditor who performs the work needs to be. This is because the auditor needs to have the necessary knowledge and skills to understand and evaluate the effectiveness of the client's internal controls and perform an accurate audit. Lowering inherent risk or assigning less staff to the engagement would not be appropriate responses to a complex client. Inexperience in the auditor performing the work could lead to errors or omissions in the audit.

Question 6

In preparing a working paper for tests of controls, _______.
A)the auditor should defer preparation to the internal audit function
B)the auditor would ordinarily set out the purpose of the tests of the financial statement accounts identified
C)the auditor would ordinarily set out the purpose of the tests of the controls identified
D)the auditor should be careful to avoid bringing to management's attention any defective controls

Accepted Answer

The purpose of tests of controls in an audit is to evaluate the effectiveness of an entity's internal control over financial reporting. Therefore, when preparing a working paper for tests of controls, the auditor would set out the purpose of these tests related to the controls identified, to document their design and operation.

Question 7

A _______ is an observed condition that provides evidence that the control being tested did not operate as intended.

Accepted Answer

The answer of A _______ is an observed condition that...

Question 8

Bob Jensen is the staff auditor on the Banson Fashion audit.Bob performed tests of controls over the control "the accounts receivable subsidiary ledger reconciliation is reviewed by the financial controller".The objective of the test was to verify that a review by the financial controller occurred on a timely basis.When performing the testing, however, Bob found that while there was evidence of the review (a signature), there was no date, so timeliness could not be verified.What can Bob conclude from this test result and what should Bob do next?

Accepted Answer

The answer of Bob Jensen is the staff auditor on...

Question 9

In preparing a working paper for tests of controls, _______.
A)the auditor would ordinarily set out the purpose of the financial statements audited
B)the auditor would ordinarily set out the purpose of the tests of the controls identified
C)the auditor would request input and amendments from senior management
D)the auditor would complete the working paper with the help of the client's legal counsel

Accepted Answer

In preparing a working paper for tests of controls, the primary purpose is to identify the purpose of the tests of controls to be carried out by the auditor. Therefore, option B is the most appropriate choice. Options A, C, and D may be relevant in other parts of the audit process, but they are not directly relevant to the preparation of working papers for tests of controls.

Question 10

Working paper documentation includes the auditors' conclusion about _______ and the basis for their conclusion.

Accepted Answer

The answer of Working paper documentation includes the auditors' conclusion...

Question 11

_______ are controls that do not rely on the client's information technology (IT) environment for their operation.
[Manual controls] | Automated controls | IT general controls (ITGCs) | Computer application controls

Accepted Answer

The answer of _______ are controls that do not rely...

Question 12

Techniques that involve the auditor's use of computers to assist in verification are known as software-assisted _______ techniques.

Accepted Answer

The answer of Techniques that involve the auditor's use of...

Question 13

The procedure that involves the auditor performing the control in the same manner as an employee in order to test its effectiveness is known as _______.

Accepted Answer

The answer of The procedure that involves the auditor performing...

Question 14

Which of the following is true of working papers?
A)Working papers document the auditors' conclusion about control risk and the basis for that conclusion.
B)Working papers are necessary for the junior auditor to keep track of the daily work, but are not important to the overall audit.
C)Working papers document the results of the tests but not the purpose of the control selected for testing.
D)Working papers document the purpose of the control selected for testing and the conclusion made by the auditor, but not the results of the test.

Accepted Answer

Working papers document the auditors' conclusion about control risk and the basis for that conclusion. They also document the purpose of the control selected for testing, the results of the tests, and any exceptions or issues that arose during the audit. Working papers are critical to the overall audit because they provide evidence of the auditor's work and can be used to support their findings and opinions. Junior auditors also rely on working papers to keep track of their daily work and ensure that they are completing their assigned tasks accurately and thoroughly.

Question 15

When designing tests of controls, consideration is given to _______ with the transaction (the risk of material misstatement) at the assertion level.

Accepted Answer

The answer of When designing tests of controls, consideration is...

Question 16

The extent of the auditor's documentation will increase if _______.
A)the complexity of the client's operations, systems, and controls increases
B)the complexity of the client's operations, systems, and controls decreases
C)the auditor making on the documentation is more experienced
D)the auditor making on the documentation is less experienced

Accepted Answer

The more complex the client's operations, systems, and controls, the more documentation the auditor will need to have in order to adequately assess the effectiveness of those controls and the accuracy of the financial statements. Similarly, an inexperienced auditor may also require more documentation in order to ensure that they have thoroughly assessed the situation.

Question 17

In the given table, match the components of working paper on the left with their details on the right.

Accepted Answer

The answer of In the given table, match the components...

Question 18

Regardless of how the working papers are prepared and documented, _______.
A)the extent of the auditor's documentation will increase as the complexity of the client's operations, systems, and controls increases
B)the extent of the auditor's documentation will decrease as the complexity of the client's operations, systems, and controls increases
C)the extent of the auditor's documentation will increase as the complexity of the client's operations, systems, and controls decrease
D)the extent of the auditor's documentation will decrease as the complexity of the client's operations, systems, and controls decrease

Accepted Answer

The complexity of the client's operations, systems, and controls will directly impact the extent of the auditor's documentation. As the complexity increases, the documentation required will also increase in order to adequately evaluate and test the client's systems and controls.

Question 19

Auditors of both public companies and private entities _______.
A)have a responsibility to report internal control weaknesses to those charged with governance of the entity
B)have a responsibility to report internal control weaknesses directly to the SEC
C)have a responsibility to report internal control weaknesses to the internal audit function, for immediate rectification
D)have a responsibility to report internal control weaknesses directly to the shareholders of an entity, who in turn should address their concerns to management

Accepted Answer

Auditors of both public and private entities have a responsibility to report any internal control weaknesses they identify to those charged with governance of the entity, such as the board of directors or audit committee. This allows the entity's leadership to take action to address the weaknesses and ensure that financial reporting is accurate and reliable. Reporting directly to the SEC or shareholders may not be appropriate or necessary in all cases.

Question 20

If the auditor wants to test using the _______ technique, he must find evidence that the control was performed on a timely basis.

Accepted Answer

The answer of If the auditor wants to test using...

Quiz 8: Risk Responseperforming Tests of Controls

The _______ clearly lays out the purpose of the test of the control, the nature and extent of the work performed at an interim date, the results of the audit tests, and the auditor's conclusion about control risk.

The procedure that relies on the auditor testing the physical evidence to verify that a control has been performed properly is known as _______.

In the given table, match the concepts related to control risks on the left with the descriptions on the right.

Evaluate the following "procedures" section from a tests of controls working paper: Work performed: Selected several bank reconciliations from different months and matched to supporting documentation.Ensured the reconciliations had been prepared and reviewed on a timely basis.

The more complex the client's operations and its internal controls, _______.

In preparing a working paper for tests of controls, _______.

A _______ is an observed condition that provides evidence that the control being tested did not operate as intended.

In preparing a working paper for tests of controls, _______.

Working paper documentation includes the auditors' conclusion about _______ and the basis for their conclusion.

_______ are controls that do not rely on the client's information technology (IT) environment for their operation. [Manual controls] | Automated controls | IT general controls (ITGCs) | Computer application controls

Techniques that involve the auditor's use of computers to assist in verification are known as software-assisted _______ techniques.

The procedure that involves the auditor performing the control in the same manner as an employee in order to test its effectiveness is known as _______.

Which of the following is true of working papers?

When designing tests of controls, consideration is given to _______ with the transaction (the risk of material misstatement) at the assertion level.

The extent of the auditor's documentation will increase if _______.

In the given table, match the components of working paper on the left with their details on the right.

Regardless of how the working papers are prepared and documented, _______.

Auditors of both public companies and private entities _______.

If the auditor wants to test using the _______ technique, he must find evidence that the control was performed on a timely basis.