An entity's internal control consists of the policies and procedures established to proivde reasonable assurance that specific entity objectives will be achieved. Only some of these objectives, policies, and procedures are relevant to a financial statement audit. Which one of the following would most likely be considered in such an audit?
C. maintenance of control over unused checks
An internal control questionaire (ICQ) contains the following question: "Does a single individual receive and list cash receipts and perform posting to sales and general ledgers?" What action should an auditor take if the manager of accounting reponds "yes" to the question?
C. treat it as a potential control weakness and perform appropriate testing
The primary responsibility for establishing and maintaining internal controls rests with
A. management
Which method provides the auditor with the best visual grasp of a system and a means for analyzing complex operations?
A. a flowcharting approach
Which of the following factors are included in an entity's control environment?
audit committe internal audit function management style
D. yes yes yes
An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about
C. the entity's ability to process and summarize financial data
In addition to gaining an understanding of the internal controls for a private company, an external auditor, at minimum, would be expected to
B. trace a few transactions through the control process to obtain evidence that the controls have been placed in operation
An advantage of an internal control questionaire is
D. ease of completion
Which of the following is an inherent limitation of any client's internal control?
A. procedures whose effectiveness depends on separation of duties can be circumvented by collusion
Internal controls are designed to provide reasonable assurance that
A. material errors of fraud would be prevented or detected and corrected
within a timely period by employees in the course of performing their
assigned duties
The most important fundamental concept involved in a company's internal control is:
B. people operate the control system
The primary purpose for obtaining an understanding of an audit client's internal control is to:
A. determine the nature, timing, and extent of tests to be performed in the audit
Reduction of audit procedures can be characterized by:
B. selecting smaller sample sizes for audit
Of the internal control objectives categorized by COSO, which is most important to auditors?
A. reliability of financial reporting
Which of the following is application controls?
B. an output control department that ensures that reports go to authorized recipients
In the weekly computer run to prepare payroll checks, a check was printed for an employee who had been terminated the previous week. Which of the following controls, if properly utilized, would have been most effective in preventing the eeror or ensuring its prompt detection?
B. a control total for hours worked, prepared from time cards collected by the timekeeping department
In most audits of large companies, internal control risk assessment contributes to audit effiency, which means:
A. auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs
Which of the following is a device designed to help the audit team obtain evidence about the control environment and about the accounting and control procedures of an audit client?
B. an internal control questionaire
A bridge working paper shows the connection between:
B. control evaluation findings and subsequent audit procedures
Tests of controls are required for:
A. obtaining evidence about the operating effectiveness of client control procedures
A client's control procedures is:
D. an action taken by client personnel for the purpose of preventing,
detecting, and correcting errors and frauds in transactions
When planning an audit, an auditor's prior experience with the client's internal control procedures can be used to:
B. identify the errors and frauds that could occur in the business
Totals of amounts in computer record data fields that are not usually added but are used only for data processing control purposes are called:
B. hash totals
In updating a computerized accounts receivable file, which one of the following would be used as a batch control to verify the accuracy of the posting of cash receipts remittances?
C. the sum of the cash deposits plus the discounts taken by customers