question archive 1) Control tests are required for A
1) Control tests are required for A
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1) Control tests are required for
A. analytical review of financial statement balances.
B. accomplishing control over the validity of recorded transactions.
C. obtaining evidence about the financial statement assertions.
D. obtaining evidence about the operating effectiveness of company control procedures.
2. On the basis of audit evidence gathered and? evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk? level, the auditor would
A. decrease substantive testing.
B. increase inherent risk.
C. decrease detection testing.
D. increase materiality.
3. Which of the following statements is true relating to internal control? testing?
A. as the work of testing of controls? increases, the cost of substantive work increases
B. substantive testing is the most cost−efficient way of designing each audit
C. there is a point where further testing of controls becomes more expensive than performing substantive tests
D. testing of controls is the most cost−efficient way of designing each audit
4. One approach to audit through the computer to test controls is to
A. reprocess live data and have the auditor compare the output with the previous output.
B. trace outputs to source documents to ensure documents have been processed correctly.
C. use simulated data in an audit program to determine if similar controls are being used.
D. reprocess live data with generalized audit software.
5. When the auditor identifies opportunities for the client to make operational improvements in the internal control? system, it will be communicated to the? client's audit committee in the
A. management letter.
B. engagement letter.
C. audit report.
D. reportable conditions letter.
6. A secondary objective of the? auditor's study and evaluation of internal control is that the study and evaluation provide
A. a basis for reliance on the accounting system.
B. an assurance that the records and documents have been maintained in accordance with existing company policies and procedures.
C. an indication that management and employees are trustworthy.
D. a basis for constructive suggestions concerning improvements in internal control.
7. The Sarbanes−Oxley Act requires management to certify that it has informed the auditor and audit committee of any
A. specific business or industry risk.
B. significant deficiencies in business practices.
C. related party transactions.
D. significant deficiencies in internal controls.
8.The Sarbanes Oxley Act has had consequences for many areas of corporate? activities, including the following impact on the work of the? auditor:
A. The auditor is now required to report all fraudulent activities? he/she uncovers directly to the Securities and Exchange Commission.
B. The auditor must create a report verifying the information in the financial statements.
C. The auditor must monitor how well management is carrying out its financial reporting responsibilities.
D. The auditor is specifically required to evaluate the internal controls used by management to prepare financial information.
9. Paul is in the process of performing procedures to obtain the necessary understanding of the? client's internal controls. As part of this? process, Paul received from the client completed? narratives, flowcharts, and internal control questionnaires. Paul can use this information from the client
A. if there has not been any significant change in the internal controls since the prior year.
B. if the entity−level controls and tone at the top were found to be effective.
C. as long as any subsequent reliance on controls is adequately substantiated with testing.
D. since it was prepared by? management, which is unbiased.
10. Control tests are required for
A. obtaining evidence about the financial statement assertions.
B. obtaining evidence about the operating effectiveness of company control procedures.
C. accomplishing control over the validity of recorded transactions.
D. analytical review of financial statement balances.
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1. D. obtaining evidence about the operating effectiveness of company control procedures.
2. C. decrease detection testing.
3. A. as the work of testing of controls? increases, the cost of substantive work increases.
4. B. trace outputs to source documents to ensure documents have been processed correctly.
5. A. management letter.
6. A. a basis for reliance on the accounting system.
7. D. significant deficiencies in internal controls.
8. D. The auditor is specifically required to evaluate the internal controls used by management to prepare financial information.
9. C. as long as any subsequent reliance on controls is adequately substantiated with testing.
10. B. obtaining evidence about the operating effectiveness of company control procedures.
Step-by-step explanation
1. D. obtaining evidence about the operating effectiveness of company control procedures.
Control tests are used to provide evidence about the operating effectiveness of company control procedures.
2. C. decrease detection testing.
Detection risk will make the auditor fail to find material misstatements that exist in an entity's financial statements due to fraud or error. Reducing the detention risk will bring an overall audit risk level that is substantially the same as the planned audit risk? level.
3. A. as the work of testing of controls? increases, the cost of substantive work increases
Substantive tests verify if the information is correct, while control tests determine whether the information is managed under a system that promotes correctness. They thus work hand in hand, and as the work of testing of controls? increases, the cost of substantive work increases too.
4. B. trace outputs to source documents to ensure documents have been processed correctly.
Audit through the computer to test controls will be effective if the outputs are traced to the source documents to make sure that there is correctness in processing.
5. A. management letter.
A management letter is a letter prepared by the auditor that highlights findings and recommendations for any improvements to internal control identified during the audit.
6. A. a basis for reliance on the accounting system.
A secondary aim of studying and evaluating internal control by the auditors is to give a basis for reliance on the accounting system.
7. D. significant deficiencies in internal controls.
The SOX act requires the management to certify that an effective internal control system has been implemented. Management based on a recent evaluation of internal control over financial reporting should also disclose tor the company auditor and the audit committee of the company's board of directors;
i) All significant deficiencies and material weaknesses in the design and operation of internal control over financial reporting
ii) Any fraud, whether material or not, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
8. D. The auditor is specifically required to evaluate the internal controls used by management to prepare financial information.
The SOX Act requires the auditor to strictly do an evaluation on the management's internal controls to prepare the financial information.
9. C. as long as any subsequent reliance on controls is adequately substantiated with testing.
Paul can only use the data as long as any subsequent reliance on controls is adequately substantiated with testing.
10. B. obtaining evidence about the operating effectiveness of company control procedures.
The aim of control tests is to provide evidence on how the firm control procedures are operating.
