Question 1

Independent auditors should consider the work of internal auditors in their assessment of control risk.
a.Are internal auditors independent of management?
 Explain.
b.What is the difference between the primary objective of the independent auditors and that of internal auditors?
 Explain.
c.Discuss the factors that should be considered by the independent auditors in deciding how much,if any,reliance should be placed on the work of the internal auditors.

Accepted Answer

The answer of Independent auditors should consider the work of...

Question 2

When considering a client's internal control,the auditors focus on its various characteristics.For each of the following characteristics indicate the auditors' responsibility under generally accepted auditing standards and the procedures used to meet that responsibility.
a.The design of internal control.
b.Controls have been implemented (placed in operation).
c.The operating effectiveness of controls.

Accepted Answer

The answer of When considering a client's internal control,the auditors...

Question 3

When performing an internal control audit under PCAOB standards,one or more material weaknesses in internal control that exist at year-end may result in what type of report(s): $$\begin{array} { c c c } 
& \text { Qualified } & \text { Disclaimer } \
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of When performing an internal control audit under...

Question 4

When performing an audit of internal control under PCAOB requirements,auditors evaluate control: $$\begin{array}{l}
\begin{array} { c } 
&\text { Design Effectiveness}&\text{ Operating Effectiveness }\
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

PCAOB requirements mandate auditors to evaluate both the design and operating effectiveness of internal controls. Therefore, auditors must assess whether the controls are suitably designed to prevent or detect material misstatements, and whether the controls operate effectively during the audit period. Option A indicates that both design and operating effectiveness are evaluated, making it the correct option. Option B would only evaluate design effectiveness but not operating effectiveness, which are both mandated under PCAOB standards. Option C would only evaluate operating effectiveness but not design effectiveness, while option D would not evaluate either design or operating effectiveness, which is incorrect under PCAOB standards.

Question 5

For A through F place a X in the box (for Situation 1 or Situation 2)which is most accurate with the statement below; if for any question you believe that the situation are the same relating to that question place an X in each of the two boxes.
In both situations assume inherent risk is at a high level.

Accepted Answer

The answer of For A through F place a X...

Question 6

When performing an internal control audit under PCAOB requirements,one or more material weaknesses in internal control that exist at year-end may result in what type of report(s): $$\begin{array} { c } 
&\text { Qualified}&\text{ Adverse }\
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

Under PCAOB standards, the presence of one or more material weaknesses in internal control at year-end results in an adverse opinion, not a qualified opinion.

Question 7

Which of the following would be least likely to be included in an auditor's tests of controls?
A)Inspection.
B)Observation.
C)Inquiry.
D)Analytical procedures.

Accepted Answer

Analytical procedures are primarily used in substantive procedures to obtain evidence about financial statement balances, rather than testing the effectiveness of controls. Inspections, observations, and inquiries are commonly used in tests of controls to assess whether the controls are operating effectively.

Question 8

Auditors are required to consider a client's internal control.
a.Describe the two purposes of the auditors' consideration of a client's internal control.
b.Even the best internal control has certain limitations.List three of those limitations.

Accepted Answer

The answer of Auditors are required to consider a client's...

Question 9

The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States:
A)All companies.
B)SEC registrants.
C)Only those companies included in the Fortune 500.
D)All nonpublic companies.

Accepted Answer

The internal control provisions of the Sarbanes-Oxley Act of 2002 apply only to companies that are registrants with the Securities and Exchange Commission (SEC). This includes publicly traded U.S. companies with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as well as foreign companies that issue securities in the U.S. and are subject to SEC reporting requirements.

Question 10

A report on internal control performed in accordance with PCAOB Standard No.5 includes an opinion on internal control for:
A)The entire year.
B)The prior quarter.
C)The "as of date."
D)The end of each quarter.

Accepted Answer

The opinion on internal control performed in accordance with PCAOB Standard No.5 is issued as of a specific date. This means that the opinion provides an assessment of internal control as of the specified date, rather than for a specific period of time (such as the entire year or a specific quarter). Therefore, the best choice is option C, which specifies that the opinion is issued as of a particular date.

Question 11

An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and:
A)Compliance with laws.
B)Internal control over asset safeguarding.
C)Internal control over financial reporting.
D)Suitable criteria.

Accepted Answer

An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses both financial statements and internal control over financial reporting. The other options, while important in the audit process, are not explicitly part of the requirements under Section 404b.

Question 12

Tests of controls are most likely to be performed when:
A)Controls seem weak and must be properly documented.
B)Inadequate substantive procedures exist to restrict audit risk to an acceptable level.
C)The auditor wishes to assess control risk at the maximum.
D)The client's control environment appears weak.

Accepted Answer

Tests of controls are performed to obtain audit evidence about the effectiveness of the client's internal control system in order to support a reduction in substantive procedures. If substantive procedures are inadequate to restrict audit risk to an acceptable level, tests of controls may be performed to compensate for the deficiency of substantive procedures.

Quiz 7: Internal Control

Which of the following would be least likely to be included in an auditor's tests of controls?

Auditors are required to consider a client's internal control. a.Describe the two purposes of the auditors' consideration of a client's internal control. b.Even the best internal control has certain limitations.List three of those limitations.

The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States:

A report on internal control performed in accordance with PCAOB Standard No.5 includes an opinion on internal control for:

An integrated audit performed under Section 404b of the Sarbanes-Oxley Act addresses financial statements and:

Tests of controls are most likely to be performed when: