Question 1

Millicent Vonareva was reviewing her IT General Controls program for her client visit. She noticed an item that she thought did not belong in her "Controls to prevent unauthorized access to data" section of the program. Which item did NOT belong there?
A) Data files and critical applications are regularly backed up in offsite locations.
B) Program changes are subject to formal change management procedures.
C) Policies exist to ensure departing employees are denied access to software programs and databases.
D) All the above items belonged in the "controls to prevent unauthorized access to data" section of the program.

Accepted Answer

B

Question 2

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

Accepted Answer

The purpose of preventive controls is to stop errors or fraud from occurring in the first place, not to discover or rectify them after they have occurred.

Question 3

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

Accepted Answer

Benchmarking compares current performance with past performance to identify areas of improvement and maintain best practices. By carrying forward the benefit of certain application controls testing, benchmarking helps to ensure that the same control procedures are effective and efficient in future audits.

Question 4

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

Accepted Answer

Attribute sampling is a sampling technique used to determine the rate of occurrence of a specific attribute or characteristic within a population, not to estimate the total dollar amount of misstatement in an account balance.

Question 5

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

Accepted Answer

Tracing certain amounts on the bank reconciliation to the accounting records involves inspecting physical evidence, such as bank statements and accounting records.

Question 6

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

Accepted Answer

If the tests of controls confirm the auditor's preliminary evaluation of controls, there is assurance that the controls are operating effectively and the auditor can continue with their planned substantive audit procedures without modification.

Question 7

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

Accepted Answer

Re-performance is a testing method used by auditors to obtain evidence about the effectiveness of a control. It involves the auditor performing the control himself/herself to confirm that it is operating effectively.

Question 8

Ben Simon wants to ensure that sales in a retail outlet are NOT recorded at the wrong amount. Which preventive control will help him ensure his objective?
A) the signature of the goods by the warehouse receiver on a receiving report or a bill of lading
B) a credit check by the credit manager
C) automatic pricing of sales invoices using a master price file
D) none of the above

Accepted Answer

Automatic pricing of sales invoices using a master price file would ensure that sales are recorded at the correct amount and prevent any errors in pricing. The other options provided, such as a signature on a receiving report or a credit check, do not directly relate to preventing errors in recording sales amounts.

Question 9

Enquiry involves the auditor observing the actual control being performed.

Accepted Answer

Enquiry involves asking questions of management or employees to obtain information about specific controls, rather than observing the controls being performed.

Question 10

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

Accepted Answer

IT general controls are not driven by the particular software application being used. IT general controls are controls that are applied to all information technology systems and support the effective functioning of application controls. Examples of IT general controls include access controls, change management controls, and backup and recovery controls. These controls are not specific to any particular software application.

Question 11

Rolland Meilleur, a public accountant, is testing whether his client's account coding on each purchase order is checked by the computer to a table of valid account numbers, and that various logic tests are performed by the computer. He is trying to mitigate the following from going wrong:
A) detective controls not being in place.
B) amounts being posted to the wrong accounting period.
C) transactions being classified and coded to incorrect accounts.
D) all of the above.

Accepted Answer

Rolland Meilleur is ensuring that transactions are classified and coded to the correct accounts by checking the account coding against a table of valid account numbers and performing logic tests.

Question 12

Rosie Garaga spent the past week designing audit procedures to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements of a major bookstore operation at the assertion level. What types of audit procedures did she employ?
A) entity-level controls
B) detective controls
C) tests of controls
D) preventive controls

Accepted Answer

The types of audit procedures described in the question - evaluating the operating effectiveness of controls in preventing, detecting, and correcting material misstatements at the assertion level - are typically tests of controls. Tests of controls are performed to obtain evidence about the operating effectiveness of specific controls, whereas preventive controls are designed to prevent errors from occurring in the first place and detective controls are designed to identify errors after they occur. Entity-level controls, while important, are not specific audit procedures used to evaluate controls at the assertion level.

Question 13

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

Accepted Answer

Tests of account balances can provide evidence about the accuracy and completeness of financial statements but they can also provide evidence about the effectiveness of internal controls. For example, if account balances are reconciled regularly and discrepancies are identified and resolved in a timely manner, this suggests that controls over the recording and reconciliation of those balances are functioning effectively.

Question 14

Susan Struthers will be reviewing those controls that stop fraud or errors from occurring. This is an example of a review of
A) detective controls.
B) preventive controls.
C) entity-level controls.
D) transaction-level controls.

Accepted Answer

Preventive controls are designed to deter or prevent fraud or errors from occurring in the first place, such as authentication procedures or segregation of duties. The fact that Susan Struthers is reviewing controls that stop fraud or errors from occurring indicates that she is reviewing preventive controls. Detective controls, on the other hand, are designed to identify or detect fraud or errors after they have occurred, such as monitoring or audit procedures. Entity-level controls and transaction-level controls are broader categories that can include both preventive and detective controls.

Question 15

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.

Accepted Answer

This statement is true. Transaction-level controls are put in place to prevent or detect errors and fraud, and ensure that business processes are running efficiently.

Question 16

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

Accepted Answer

A locked inventory stock cage requires physical keys or combinations to access, making it a purely manual control with no automated or electronic components.

Question 17

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

Accepted Answer

The statement is incorrect. The greater the degree of reliance on an internal control, the more they test the control to provide the required assurance. This is because if there is a higher degree of reliance on a control, it is more important to ensure that the control is functioning effectively.

Question 18

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.

Accepted Answer

If inherent risk is low and a reasonable level of assurance has been gained from controls testing, extensive substantive procedures may not be necessary. This is because the likelihood of material misstatement in the account balance is lower and the controls have been deemed effective in preventing or detecting errors.

Question 19

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

Accepted Answer

The more complex the client's operations and its internal controls, the more experienced the auditor who performs the audit work needs to be to adequately assess and understand the system.

Question 20

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

Accepted Answer

Auditors prioritize the testing of controls that are essential to reducing the risk of material misstatements. This approach is known as a risk-based audit methodology, which improves efficiency and enables auditors to allocate their resources effectively.

Quiz 8: Execution of the Audittesting of Controls

Millicent Vonareva was reviewing her IT General Controls program for her client visit. She noticed an item that she thought did not belong in her "Controls to prevent unauthorized access to data" section of the program. Which item did NOT belong there?