Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/38

Click to flip

38 Cards in this Set

  • Front
  • Back

Section 404 of the Sarbanes-Oxley Act of 2002includes internal control reporting requirements for both management andauditors.

True

The Sarbanes-Oxley Act changed auditorassociation with a client's internal control from the review to the audit formof association.

False

The amount involved with a significantdeficiency is at least a material amount.

False

The "as of date" for internal controlreporting is ordinarily the last day of the fiscal year.

True

The lack of effective antifraud programs isalways considered a material weakness.

False

PCAOB standards suggest that auditors emphasizenonroutine transactions as contrasted to routine transactions in theirconsideration of internal control.

False

An auditor's report on internal controlordinarily includes negative assurance on the effectiveness of internalcontrol.

False

Tests of operating effectiveness ordinarilyinclude re-performance of the application of controls.

True

A client imposed scope limitation relating tothe audit of internal control ordinarily results in a qualified report.

False

If management's report on internal controldiscloses a material weakness, the auditors (who agree that it is a materialweakness) will issue a report that includes a qualified opinion.

True

Which of the following is most likely to beconsidered a material weakness in internal control?


A. An ineffectivecontrol environment.B. Restatement ofpreviously issued financial statements due to a change in accounting principles.


C. Inadequate controlsover non-systematic transactions.


D. Weaknesses in riskassessment.


A. An ineffective control environment.

According to PCAOB standards, determining theallowance for doubtful accounts is referred to as a(n):


A. Substantivetransaction.


B. Routine transaction.


C. Nonroutinetransaction.


D. Accounting estimatetransaction.

D. Accounting estimate transaction.

The framework most likely to be used by theclient in its internal control assessment is the: A. COSO internalcontrol framework.


B. COSO enterprise riskmanagement framework.


C. FASB 37 internalcontrol definitional framework.


D. AICPA internalcontrol analysis manager.

A. COSO internal control framework.

A material weakness that exists at year end willresult in what type of audit report on internal control?


A. Adverse.


B. Qualified.


C. Unqualified.


D. Unqualified withexplanatory language.

A. Adverse.

Assume that an auditor is focusing on twoweaknesses in internal control. Although neither is by itself a materialweakness, the two significant deficiencies in combination represent a materialweakness. The client effectively remediates one of them prior to year-end butdoes not have time to remediate the other prior to year-end. What type of auditreport on internal control is appropriate? A. Adverse.


B. Qualified.


C. Unqualified.


D. Unqualified withexplanatory language.

C. Unqualified.

Which of the following is a weakness in internalcontrol that allows a reasonable possibility that a significant (but less thanmaterial) misstatement may occur and not be detected?


A. Control deficiency.


B. Material weakness.


C. Reportable materialitem.


D. Significantdeficiency.


D. Significant deficiency.

Which of the following would most likely beincluded in a SEC 10K filing in which a material weakness in internal controlexists?

Which of the following would most likely beincluded in a SEC 10K filing in which a material weakness in internal controlexists?


Option A

An auditor identified a material weakness ininternal control in August. The client was informed and the client correctedthe material weakness prior to year-end (December 31); the auditor agrees thatthe correction eliminates the material weakness prior to year-end. Theappropriate audit report on internal control under PCAOB standards on reportingon internal control is:


A. Adverse.


B. Unqualified.


C. Disclaimer.


D. Qualified.


B. Unqualified.

An auditor identified a material weakness ininternal control in December. The client was informed and the client correctedthe material weakness shortly after year-end (December 31); the auditor agreesthat the correction eliminates the material weakness as of January 31. Theappropriate audit report on internal control under PCAOB standards on reportingon internal control is:


A. Adverse.


B. Unqualified.


C. Unqualified withexplanatory language relating to the material weakness.


D. Qualified.


A. Adverse.

An auditor identified a significant deficiencyin internal control in December. The client was informed and the clientcorrected the significant deficiency shortly before year-end (December 31); theauditor agrees that the correction eliminates the significant deficiency as ofDecember 31. The appropriate audit report on internal control under a PCAOBStandard No. 2 audit of internal control is: A. Adverse.


B. Unqualified.


C. Unqualified withexplanatory language relating to the significant deficiency.D. Qualified.

B. Unqualified.

Which of the following must be included inmanagement's report internal control under section 404 of the Sarbanes/OxleyAct of 2002?


A. It is management'sresponsibility to eliminate or publicly report on significant deficiencies ininternal control.


B. A detaileddescription of the COSO criteria.C. Management'sassessment of the operating effectiveness for the period from the beginning tothe end of the fiscal year under audit.


D. Identification ofthe framework used for evaluating internal control.

D. Identification of the framework used for evaluating internal control.

Which of the following is a strong indicatorthat a material weakness in internal control exists? A. Restatement ofpreviously issued financial statements to reflect a correction.


B. Inadequate controlsover non-routine transactions.


C. Inadequate controlsover the period-end financial reporting process.


D. Weaknesses in acontrol activity.ؗ

A. Restatement of previously issued financial statements to reflect a correction.

A circumstance caused scope limitation in aSarbanes/Oxley 404 internal control audit is most likely to result ina(n):


A. Withdrawal from theengagement.B. Disclaimer ofopinion.


C. Unqualified opinionwith explanatory language.


D. All of the above areequally likely.

B. Disclaimer of opinion.

Under PCAOB internal control reportingstandards, what are the auditor's communication requirements to the auditcommittee with respect to material weaknesses?


A. All must becommunicated in written form.B. All must becommunicated in written form or orally.


C. Only those thatviolate the Foreign Corrupt Practices Act need be communicated, but in writtenform.


D. Only those thatviolate the Foreign Corrupt Practices Act need be communicated, in written formor orally.

A. All must be communicated in written form.

A material weakness because the oversight of theexternal financial reporting function by the audit committee is ineffectivewill ordinarily result in communication to:

A material weakness because the oversight of theexternal financial reporting function by the audit committee is ineffectivewill ordinarily result in communication to:

D

Deficiencies in internal control identified bythe auditor that are lesser than significant deficiencies:


A. Must be communicatedto the board of directors, the audit committee, and management.


B. Must be reported tothe audit committee and management.


C. Must be communicatedto management, with the audit committee only informed of the communication tomanagement.


D. Need not be disclosedunless they in aggregate equal (at least) a significant deficiency.

C. Must be communicated to management, with the audit committee only informed of the communication to management.

Which is leastlikely to be a question asked of employee personnel during a walkthrough? A. Have you ever beenasked to override the process?


B. Have you assessedthe operating effectiveness of the system?


C. What do you do whenyou find an error?D. What are you lookingfor to determine if there is an error?

B. Have you assessed the operating effectiveness of the system?

Which of the following fits most directly underthe control activities components of the COSO IC framework?


A. Company-levelcontrols dealing with tone at the top.


B. Overall methods forassigning authority and responsibility.


C. The controlenvironment.


D. Accounting forshipping documents to ensure that all sales are recorded.

D. Accounting for shipping documents to ensure that all sales are recorded.

Consider a company whose sales are initiated bycustomers either through the Internet, or in a retail store. Which of thefollowing is correct?


A. These types ofsales represent two major classes of transactions within the sales process.


B. These types of salesrepresent two sales processes within a major evaluation processing cycle.


C. These sales representa sales assertion on completeness.


D. These eventsrepresent nonroutine transactions that must be investigated in detail.

A. These types of sales represent two major classes of transactions within the sales process.

According to PCAOB standards for reporting oninternal control, calculating depreciation expense or adjusting for foreigncurrencies is referred to as:


A. Substantivetransactions.


B. Routine transactions.


C. Nonroutinetransactions.


D. Accounting Estimatetransactions.

C. Nonroutine transactions.

A material weakness involves a reasonablepossibility that what size misstatement will not be prevented or detected?


A. Immaterial.


B. Material.


C. More thaninconsequential.


D. Substantial.

B. Material.

A control deficiency that is less than asignificant deficiency is most likely to result in what form of audit opinionon internal control?


A. Adverse.


B. Qualified.


C. Unqualified.


D. Unqualified withexplanatory language.

C. Unqualified.

Under a PCAOB standards for an internal controlaudit, which of the following is least likely to indicate a significantdeficiency relating to a client's antifraud programs? A. No program foranonymous submissions of alleged fraud.


B. Audit committeeactive engagement in discussions on the topic of fraud.


C. Senior managementdelegates to lower levels responsibility for oversight of antifraud programs.


D. Lack of auditcommittee interaction with the internal audit department.

B. Audit committee active engagement in discussions on the topic of fraud.

The minimum likelihood of loss involved in theconsideration of a control deficiency that is less than a significantdeficiency is:


A. Remote.


B. More than remote.


C. Probable.


D. Not considered.

D. Not considered.

The minimum likelihood of loss involved in theconsideration of a possible significant deficiency is:


A. Remote.


B. Reasonablypossible.


C. Probable.


D. Not considered.


B. Reasonably possible.

The minimum likelihood of loss involved in theconsideration of a possible material weakness is:


A. Remote.


B. Reasonablypossible.


C. Probable.


D. Not considered.

B. Reasonably possible.

The existence of a material weakness led to anadverse opinion in the internal control audit report of a publicly tradedcompany. Which of the following statements is correct if management believesthat it has remediated the weakness?


A. Management mayengage the auditors to report on whether the material weakness continues toexist prior to its next annual audit.


B. Management isrequired to engage the auditors to report on whether the material weaknesscontinues to exist prior to its next annual audit.


C. Management may notengage the auditors to report on whether the material weakness continues toexist prior to its next annual audit.


D. Management may engagethe auditors to modify the prior adverse audit report be modified to anunqualified report.

A. Management may engage the auditors to report on whether the material weakness continues to exist prior to its next annual audit.

An audit firm has been engaged to report onwhether a material weakness that previously resulted in an adverse opinion oninternal control has been remediated. Which of the following statements iscorrect?


A. A significant scopelimitation on the auditor's procedures results in a qualified opinion or anadverse opinion.


B. If there has beenan auditor change, the successor auditor may issue such a report.C. If while performingthe engagement another material weakness is identified, it will result in anadverse opinion relating to the current engagement to report upon the othermaterial weakness.


D. The engagement mayonly take place at year-end during the next year's audit of internal control.

B. If there has been an auditor change, the successor auditor may issue such a report.