acct 241 ch 5

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?
A. timely reporting and review of quality control results
B. marketing analysis of sales generated by advertising objectives
C. maintenance of control over unused checks
D. maintenance of statistical production analyses

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?
A. include it with other reporting findings in the next audit report
B. statistically sample the response along with all other "yes" responses to verify their accuracy
C. treat it as a potential control weakness and perform appropriate testing
D. No action is required because "yes" repsonses on an ICQ indicate the presence of good control

The primary responsibility for establishing and maintaining internal controls rests with
A. management
B. the external auditors
C. the Public Company Accounting Oversight Board
D. the internal auditors

Which method provides the auditor with the best visual grasp of a system and a means for analyzing complex operations?
A. a flowcharting approach
B. a matrix approach
C. a detailed narrative approach
D. a questionaire approach

Which of the following factors are included in an entity's control environment?
audit committe internal audit function management style
A. yes no yes
B. no yes yes
C. yes yes no
D. yes yes yes

An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about
A. the efficiency of management's decision making process
B. methods of assigning production tasks to employees
C. the entity's ability to process and summarize financial data
D. appropriate prices the entity should charge for its products

In addition to gaining an understanding of the internal controls for a private company, an external auditor, at minimum, would be expected to
A. study organization charts to obtain an understanding of the informal lines of communications
B. trace a few transactions through the control process to obtain evidence that the controls have been placed in operation
C. evaluate the internal auditor's work as an important part of the accounting system element of the internal controls
D. observe client employees to determine the extent of their compliance with quality control standards

An advantage of an internal control questionaire is
A. that it provides sufficient data for the assessment of control risk
B. flexibility in design and application
C. its strict adherence to a yes/no format
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
B. procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against frauds perpetrated by management
C. the benefits expected to be derived from effective internal controls usually do not exceed the costs of such controls
D. the competence and integrity of client personnel provide an envirnoment conductive to control and provides assurance that effective control will be achieved

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
B. management's plans have not been circumvented by worker collusion
C. management's planning, organizing, and directing processes are properly evaluated
D. the internal auditing department's guidance and oversight of management's performance is accomplished economically and efficiently

The most important fundamental concept involved in a company's internal control is:
A. effectivness and efficiency of operations
B. people operate the control system
C. compliance with applicable laws and regulations
D. relaibility of financial reporting

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
B. obtain sufficient competent audit evidence to afford a reasonable basis for an opinion on the financial statements under examination
C. provide information for a communication of internal control related maters to managment
D. provide a basis for making constructive suggestions in a management letter

Reduction of audit procedures can be characterized by:
A. moving audit procedures to the fiscal year end date
B. selecting smaller sample sizes for audit
C. deciding to obtain external evidence instead of internal evidence
D. selecting larger sample sizes for audit

Of the internal control objectives categorized by COSO, which is most important to auditors?
A. reliability of financial reporting
B. compliance with laws and regulations
C. effectiveness and efficiency of operations
D. management philosophy and operating style

Which of the following is application controls?
A. change controls over new programs
B. an output control department that ensures that reports go to authorized recipients
C. back up controls
D. locked doors to the central server

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?
A. requiring the treasure's office to account for the numbers of the prenumbered checks issued to the computer department for the processing of the payroll
B. a control total for hours worked, prepared from time cards collected by the timekeeping department
C. use of the check digit for employee numbers
D. use of a header label for the payroll input sheet

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
B. the cost of substantive procedures will exceed the cost of control evaluation work
C. auditors will be able to reduce the cost of substantive procedures by an amount less than the control evaluation costs
D. the cost of control evaluation work will exceed the cost of substantive procedures

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?
A. a narrative memorandum describing the control system
B. an internal control questionaire
C. a flowchart of the documents and procedures used by the company
D. all of the above

A bridge working paper shows the connection between:
A. control objectives and company control procedures
B. control evaluation findings and subsequent audit procedures
C. financial statement assertions and test of controls
D. control objectives and accounting system procedures

Tests of controls are required for:
A. obtaining evidence about the operating effectiveness of client control procedures
B. analytical procedures applied to finacial statemetn balance
C. accomplshing control over the occurrence of recorded transactions
D. obtaining evidence about the financial statement assertions

A client's control procedures is:
A. the functioning of the board of directors in support of its audit committee
B. a method for recording, summarizing, and reporting financial informatoin
C. an actions taken by auditors to obtain evidence
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:
A. assess the operational efficiency this year of the internal controls in general
B. identify the errors and frauds that could occur in the business
C. find evidence of whether management has circumvented controls by collusion
D. prepare audit files documenting the decision about the control risks this year

Totals of amounts in computer record data fields that are not usually added but are used only for data processing control purposes are called:
A. processing data totals
B. hash totals
C. field totals
D. record 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?
A. the sum of the cash deposits
B. the sum of the cash deposits plus the discounts less the sales returns
C. the sum of the cash deposits plus the discounts taken by customers
D. the sum of the cash deposits less the discounts taken by customers

AS 2 requires auditors to test
A. operating effectiveness only
B. design effectiveness only
C. both operating and design effectiveness