Auditing Final Exam: Ch 10-13

  1. Which of management's assertions with respect to implementing internal controls is the auditor primarily concerned? 

    C. Reliability of financial reporting
  2. Internal controls: 

    D.  Consist of policies and procedures designed to provide reasonable assurance that the company achieves its objectives and goals.
  3. An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:

    B. Collusion
  4. The auditors primary purpose in auditing the client's system of internal control over financial reporting is:

    D. To evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements.
  5. Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the:

    A. Competency and dependability of the people using it
  6. When considering internal controls, an important point to consider is that: 

    B. Auditors are concerned with the client's internal controls over the safeguarding of assets if they affect the financial statements.
  7. The financial statements may not correctly reflect accounting frameworks such as GAAP or IFRS if the :

    D. Controls affecting the reliability of financial reporting are inadequate.
  8. The primary emphasis by auditors is on controls over:

    A. Classes of transactions
  9. Which of the following activities would be least likely to strengthen a company's internal control? 

    C. Maintaining insurance for fire and theft.
  10. Which of the following best describes the purpose of control activities?

    B. The policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives.
  11. An audit procedure that would most likely be used by an auditor in performing tests of control procedures in which the segregation of functions and that leaves no "audit" trail is:

    D. observation
  12. Internal controls normally include procedures designed to provide reasonable assurance that:

    D. Transactions are executed in accordance with management's authorization
  13. Proper segregation of functional responsibilities calls for separation of: 

    A. Authorization, recording, and custody.
  14. If a company has an effective internal audit department:

    C. It can reduce external audit costs by providing direct assistance to the external auditors.
  15. Narratives, flowcharts, and internal control questionnaires are three common methods of: 

    C. documenting the auditor's understanding of internal controls.
  16. Which of the following best defines fraud in a financial statement auditing context?

    B. Fraud is an intentional misstatement of the financial statements.
  17. Most cases of fraudulent reporting involve:

    A. An overstatement of income
  18. Misappropriation of assets is normally perpetrated by:

    A. Employees at lower levels of the organization.
  19. The two main categories of fraud are fraudulent financial reporting and misappropriation of assets. True or False?
  20. Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

    A. Management's practice of making overly aggressive forecasts.
  21. Fraud is more prevalent in smaller businesses and not-for-profit organizations because it is more difficult for them to maintain:

    D. Adequate separation of duties.
  22. Which of the following is a factor that relates to incentives to misappropriate assets? 

    B. Significant personal financial obligations.
  23. Who is most likely to perpetrate fraudulent financial reporting?

    B. Management of the company
  24. "An attitude, character, or set of ethical values exist that allow management or employees to commit a dishonest act...." describes the opportunities condition included in the fraud triangle. True or False?
    False, it is an attitude/rationalization
  25. An ineffective board of director oversight over financial reporting is an example of an incentives/pressures risk factor. True or False?
    False, it is an opportunity
  26. When assessing the risk for fraud, the auditor must be cognizant of the fact that:

    A. Analytical procedures must be performed on revenue accounts.

    This is to identify any unusual or unexpected relationships involving revenue accounts
  27. When the auditor receives inconsistent responses from management and others within the organization, the auditor should obtain additional audit evidence to resolve the inconsistency. True or False?
  28. Which party has the primary responsibility to oversee an organization's financial reporting and internal control process?

    C. The audit committee
  29. Audit committee oversight also serves as a deterrent to fraud by senior management. True or False?
  30. The auditors should pay careful attention to accounting principles that involve subjective measurements or complex transactions. True or False?
  31. Which of the following is not one of the three primary objectives of effective internal control?A. Reliability of financial reporting
    B. Efficiency and effectiveness of operations
    C. Compliance with laws and regulations
    D. Assurance of elimination of business risk
    D. Assurance of elimination of business risk
  32. Internal controls are not designed to provide reasonable assurance that:

    C. all frauds will be detected.
  33. Which of the following is responsible for establishing a private company's internal control?

    B. Senior Management
  34. Two key concepts that underlie management's design and implementation of internal control are:

    C. inherent limitations and reasonable assurance.
  35. The PCAOB places responsibility for the reliability of internal controls over the financial reporting process on:

    C. management.
  36. Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for public companies?

    B. Management, Financial statement auditors (Yes, Yes)
  37. Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two requirements?

    A. A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting
  38. When management is evaluating the design of internal control, management evaluates whether the control can do which of the following?

    C. Detect material misstatements, Correct material misstatements (Yes, No)
  39. When one material weakness is present at the end of the year, management of a public company must conclude that internal control over financial reporting is:

    A. ineffective.
  40. Management must disclose material weaknesses in internal control in its audit report: 

    B. if the weakness exists at the end of the year.
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Auditing Final Exam: Ch 10-13
Final exam