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40 Cards in this Set
- Front
- Back
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With whom does the tone of internal control typically originate?
A. Auditors B. Employees C. Management D. Stockholders |
C. Management |
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Which of the following services does the PCAOB require auditors of public companies to perform?
A. a financial statement audit and an attest audit. B. a financial statement audit and an assurance audit. C. a financial statement audit and agreed upon procedures D. a financial statement audit and an audit of internal control
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D. a financial statement audit and an internal control |
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Which of the following is an example of a test of controls?
A. Examining the reasonableness of interest accrued on notes payable B. Verify that cash surrender value of life insurance is classified as a long-term asset. C. Using a spreadsheet to create a pivot table for the summarization of accounts receivable. D. Reviewing management's monthly bank reconciliations |
D. Reviewing Management's monthly bank reconciliations |
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Which of the following is an inherent limitation of internal controls?
A. Lack of auditor independence B. Collusion C. Separation of Duties D. Employee Peer Review |
B. Collusion |
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Which of the following is not a major component of an organization's internal control structure?
A. Control Risk B. The Control Environment C. Risk Assessment D. Control Activities
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A. Control Risk |
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Which of the following is not part of management's report on internal controls?
A. Management responsibility for control of financial reporting B. The framework used to evaluate internal control. C. An assessment of the effectiveness of the company's internal control. D. A statement that the company is not required to have an audit on internal control. |
D. A statement that the company is not required to have an audit on internal control. |
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Which of the following groups is interested in an organization's control structure?
A. Board Members B. Lenders C. Auditors D. All of the Above |
D. All of the Above |
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The quality of an organization's internal controls affect which of the following?
A. The reliability of financial data B. The ability of management to make good decisions C. the ability to sustain an effective business D. All of the above |
D. All of the above. |
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To support an assessment that controls are effective, what must an auditor do?
A. Achieve the same conclusion after appropriately testing internal control. B. Achieve the opposite conclusion after appropriately testing internal control. C. Perform increased substantive procedures. D. Perform limited substantive procedures as the assessment is justified |
A. Achieve the same conclusion after appropriately testing internal controls |
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The PCAOB's AS No. 5 states that internal controls may be preventive or detective. Which of the following controls is preventive?
A. Requiring two persons to open mail containing payments. B. Reconciling the accounts receivable subsidiary file with the control account. C. Using batch totals D. Preparing bank reconciliations |
A. Requiring two persons to open mail containing payments |
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The first general standard of the PCAOB requires that an audit be performed by which type of person?
A. an auditor with seasoned judgment in varying degrees of supervision and review. B. An auditor with appropriate technical training and proficiency C. An auditor with adequate knowledge of the standards of field work and reporting. D. An auditor satisfying the independence standards |
B. An auditor with appropriate technical training and proficiency |
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Which auditing standards apply to private companies?
A. the AICPA Standards B. the IASSB Standards C. the Standards of the PCAOB D. All of the above
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A. the AICPA Standards |
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Which one of the following organizations provides auditing standards for public companies?
A. GAO B. AICPA C. GAAP D. PCAOB |
D. PCAOB |
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Which of the following is not a type of audit procedure?
A. Analytical procedures. B. Scanning C. Reviewing. D. Observations |
C. Reviewing |
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Which of the following factors influence the risk of material misstatement?
A. The business risks B. management incentives C. IT risks D. All of the above |
D. All of the above |
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To satisfy the fieldwork standards, what must an auditor do?
A. Act with due care. B. Gather sufficient appropriate evidence. C. Be independent in mental attitude. D. Have adequate knowledge about the client's industry. E. All of the above |
B. Gather sufficient appropriate evidence. |
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Which of the following is not a typical accounting cycle?
A. Revenue B. Inventory C. Cash D Internal Controls |
D. Internal Controls |
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Which concept is referred to as the cornerstone of auditing?
A. Due professional care B. Independence C. Technical training D. None of the above |
B. Independence |
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Which one of the following attributes is not required of an auditor?
A. Independence B. Bias C. Integrity D. Technical Competence |
B. Bias |
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Which of the following is a reason why an auditor needs an understanding of internal controls?
A. To provide individual comments on internal control non-compliance B. To become comfortable that the client will pay its audit bills. C. To assess materiality. D. To assess the risk of possible misstatements in the financial statements. |
D. To assess the risk of possible misstatements in the financial statements |
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Which one of the following is the primary reason for documenting audit work?
A. To prevent litigation by other parties that question the audit performance. B. To provide a stand-alone medium that gives audit conclusions and supports the opinion. C. To give the client a full reporting of all work performed on their behalf. D. To supply a point of reference for all auditors performing the work subsequently. |
B. To provide a stand-alone medium that gives audit conclusions and supports the opinion |
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Which one of the following statements is false?
A. Auditing includes the process of gathering evidence to test assertions. B. No general audit program suits the needs for all situations. C. Even though all audits are different, they can all be approached in the same manner. D. All audits involve testing management's assertions contained in written communications to another party and independently gathering evidence to test the relevant assertions |
C. Even though all audits are different, they can all be approached in the same manner. |
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Which of the following is an example of inspection of documentation?
A. Review shipping documents. B. Estimate the expected amount of interest income. C. Observe controls. D. Recalculate the total amount include on a sales invoice |
A. Review of shipping documents |
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Which one of the following would be the least reliable type of evidence?
A. Confirmations returned by bank directly to the auditor. B. Letters of communication from the SEC. C. Physical examination of perpetual inventory. D. Evidence from an easily overridden information system. |
D. Evidence from an easily overridden information system. |
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Which one of the following would be considered the most reliable type of audit evidence?
A. Purchase orders from vendors B. Customer accounts receivable files. C. Computerized general ledger. D. Confirmations from banks. |
D. Confirmations from Banks |
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Footing, cross-footing and tests of extensions are examples of which approach to gathering evidence?
A. Reprocessing B. Recalculation C. Vouching D. Examination of documentation |
B. Recalculation |
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Sufficient evidence gathered by the auditor involves which of the following?
A. The quantity of evidence to be obtained. B. The type of evidence to be obtained. C. Obtaining limited evidence to achieve efficiency. D. The use of an audit program to obtain evidence |
A. The quantity of evidence to be obtained |
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Directional testing is important to an auditor because of which of the following factors?
A. certain accounts are more prone to be misstated by overstatement than others. B. the auditor must remain organized when conducting an audit. C. the primary concern of the auditor is the understatement of asset and revenue accounts. D. it tests for existence and completeness simultaneously. |
A. certain accounts are more prone to be misstated by overstatement than others. |
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An audit program is created to specify which of the following?
A. the type of audit opinion to be rendered based upon procedures performed B. the audit procedures that will be performed every year for the client. C. how an auditor should think while performing audit procedures. D. audit objectives and procedures to be following during the audit process. |
D. audit objectives and procedures to be following during the audit process |
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The reliability of a client's internal documentation is most affected by which of the following?
A. the auditor's independence B. management's motivation to misstate accounts. C. the type of audit report that will be issued. D. management's ability to understand generally accepted audit standards |
B. Management's motivation to misstate accounts. |
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A company must do which of the following, if a company maintains a compensating balance of cash?
A. Disclose the compensating account arrangement in financial statements. B. Close out the balance prior to year-end. C. Tie balances to debt covenants. D. Provide a lockbox for appropriate line-of-credit draws. |
A. Disclose the compensating account arrangement in financial statements |
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Which of the following controls would be most successful in mitigating the theft of customer checks received in the mail?
A. Custody of receipts by the AR manager. B. Restricted endorsements placed on the check as soon as it arrives. C. Weekly deposits to a secure bank. D. Reconciliation of bank accounts each month.
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B. Restricted endorsements placed on the check as soon as it arrives |
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Which of the following processes are included in the revenue cycle?
A. Shipping products to customers. B. Sending disbursements to suppliers. C. Issuance of capital stock. D. Preparation of a time card |
A. Shipping products to customers |
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Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives?
A. To determine revenue recognition policies. B. To ensure customer satisfaction. C. To prevent lapping by the AR department. D. To ensure the realization of receivables |
D. To ensure the realization of receivables |
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The risk of material misstatement due to fraud relating to revenue recognition should be:
A. approached in a manner that is identical to control risk assessment. B. given lower priority to the risk of embezzlement C. ordinarily presumed by the auditor. D. assumed to have been considered by the FASB |
C. ordinarily presumed by the auditor |
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Which one of the following is not a fundamental internal control the auditor would expect to find in place for a cash processing system?
A. segregation of duties B. electronic payments C. authorization of transactions D. periodic internal audits |
B. electronic payments |
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Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?
A. the cash is realized on the sale of the product. B. a price is discussed based upon the customer's resale of the product. C. the customer is given the option to return the product at any time. D. the product is adequately delivered to the customer. |
D. the product is adequately delivered to the customer |
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Which of the following is a cash management arrangement with a bank whereby the organizations' customers send payments directly to the client's bank, which deposits the remittance to the client's account?
A. lockbox B. bank transfer C. imprest bank account D. imprest account |
A. lockbox |
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The significance of the bill of lading to provide which of the following?
A. the warehouse personnel with the product that must be shipped to customers. B. invoices to customers for proper collection. C. A credit application for customer approval. D. Evidence of title transfer of goods to customers |
D. Evidence of title transfer of goods to customers |
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Which of the following situations would normally be discovered as part of the test of the bank reconciliation?
A. Failure to bill a customer. B. Failure to include a deposit in transit on the bank reconciliation. C. Duplicate payment of a vendor's invoice. D. Payment to an employee for more hours than she worked.
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B. Failure to include a deposit in transit on the bank reconciliation |
