Chapter 7 Auditing Multiple Choice

Front 1

Which of the following would be LEAST likely to be considerd an objective on internal control?

1. Checking the accuracy and reliability of accounting data.
2. Detecting management fraud.
3. Encouraging adherence to managerial policies.
4. Safeguarding assets.

Back 1

2. Detecting management fraud.

Front 2

An entity's ongoing monitoring activites often include:

1. Periodic audits by internal auditors.
2. The audit of the annual financial statements.
3. Approval of cash disbursements.
4. Management review of weekly performane reports.

Back 2

4. Management review of weekly performane reports.

Front 3

A primart objective of procedures performed to ontain an understanding of internal control is to provide the auditors with:

1. Knowledge necessary to determine the nature, timing, an extent of further audit procedures.
2. Audit evidence to use in recuding detection risk.
3. A basis for modifying tests of controls.
4. An evaluation of the consistency of application of management policies.

Back 3

1. Knowledge necessary to determine the nature, timing, an extent of further audit procedures.

Front 4

An auditor may compensate for a weakness in internal control by increasing the extent of:

1. Tests of controls.
2. Detection risk.
3. Substantive tests of details
4. Inherent risk.

Back 4

3. Substantive tests of details

Front 5

Controls over financial reporting are often classified as preventative, detecive, or corrective. Which of the following is an example of a detective control?

1. Segregation of duties over cash disbursements.
2. Requiring approval of purchase transactions.
3. Preparing bank reconciliations
4. Maintaing backup copies of key transactions.

Back 5

3. Preparing bank reconciliations

Front 6

When a CPA decided that the work performed by internal auditors may have an effect on the nature, timing, and extent of the CPA's procedures, the CPA should consider the competence and objectivitiy of the internal auditors. Relative to objectivity, the CPA shoud;

1. Consider the organizational level to which the internal auditors report the results of their work.
2. Review the interal auditor's work.
3. Consider the qualifications on the internal audit staff.
4. Review the training program in efect for the internal audit staff.

Back 6

1. Consider the organizational level to which the internal auditors report the results of their work.

Front 7

Effective internal control in a small company that has an insufficient number of employees to permit proper separation of responsibilities can be improved by:

1. Employment of temporary personnel to aid in the separation of duties.
2. Direct participation by the owner in key record keeping and control activities of the business.
3. Engaging a CPA to perform monthly write-up work.
4. Delegation of full, clear-cut responsibility for a serarate major transaction cycle to each employee.

Back 7

2. Direct participation by the owner in key record keeping and control activities of the business.