Which of the following most likely not be considered an inherent limitation of internal control?

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control?

When considering internal control, an auditor should be aware of the concept of reasonable assurance, which recognizes that

The cost of an entity’s internal control should not exceed the benefits expected to be derived.

Proper segregation of functional responsibilities calls for separation of the functions of

Authorization, recording, and custody.

An entity’s ongoing monitoring activities often include

Reviewing the purchase function.

The overall attitude and awareness of an entity’s board of directors concerning the importance of internal control usually is reflected in its

Management philosophy and operating style most likely would have a significant influence on an entity’s control environment when

Accurate management job descriptions delineate specific duties.

Which of the following factors are included in an entity’s control environment?

Audit committee, integrity and ethical values, and organization

Which of the following is not a component of an entity’s internal control?

Which of the following is a provision of the Foreign Corrupt Practices Act?

The auditor’s detection of illegal acts committed by official of the auditor’s publicly held client in conjunction with foreign officials should be reported to the Enforcement Division of the Securities and Exchange Commission.

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendor’s invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all

Which of the following procedures most likely would provide an auditor with evidence about whether an entity’s internal control activities are suitably designed to prevent or detect material misstatements?

Observing the entity's personnel applying the activities

Which statement is correct concerning the relevance of various types of controls to a financial audit?

All controls are ordinarily relevant to an audit.

In an audit of financial statements in accordance with generally accepted auditing standards, an auditor is required to

Document the auditor’s understanding of the entity’s internal control. Determine whether controls are suitably designed to prevent or detect material misstatements.

14. In obtaining an understanding of an entity’s internal control relevant to audit planning, an auditor is required to obtain knowledge about the

Consistency with which controls are currently being applied.

An auditor should obtain sufficient knowledge of an entity’s information system to understand the

Process used to prepare significant accounting estimates.

When obtaining an understanding of an entity’s internal control, an auditor should concentrate on the substance of controls rather than their form because

Management may establish appropriate controls but not enforce compliance with them.

Decision tables differ from program flowcharts in that decision tables emphasize

Logical relationships among conditions and actions.

During the consideration of internal control in a financial statement audit, an auditor is not obligated to

Perform procedures to understand the design of internal control.

A primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with

Knowledge necessary to assess the risks of material misstatements.

Which of the following statements regarding auditor documentation of the client’s internal control is correct?

Documentation must include procedural write-ups

21. In obtaining an understanding of an entity’s internal control, an auditor is required to obtain knowledge about the

Which of the following may not be required on a particular audit of a nonissuer (nonpublic) company?

Risk assessment procedures.

Control risk should be assessed in terms of

Financial statement assertions.

After assessing control risk, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whether

Additional audit evidence sufficient to support a further reduction is likely to be available.

Assessing control risk at a low level most likely would involve

Changing the timing of substantive tests by omitting interim-date testing and performing the tests at year-end.

An auditor assesses control risk because it

Is relevant to the auditor’s understanding of the control environment.

When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the

Extent of tests of details.

An auditor uses the knowledge provided by the understanding of internal control and the assessed level of the risk of material misstatement primarily to

Ascertain whether the opportunities to allow any person to both perpetrate and conceal fraud are minimized.

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

Preliminary judgment about audit risk.

Which of the following statements is correct concerning an auditor’s assessment of control risk?

Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity’s internal control.

Regardless of the assessed level of control risk, an auditor would perform some

Analytical procedures to verify the design of internal control.

When auditing a publicly-listed audit client, how frequently must an auditor test the operating effectiveness of controls that appear to function as they have in past years and on which the auditor wishes to rely in the current year?

At least every second audit.

Before assessing control risk at a level lower than the maximum, the auditor obtains reasonable assurance that controls are in use and operating effectively. This assurance is most likely obtained in part by

An auditor generally tests the segregation of duties related to inventory by

Document inspection and reconciliation.

The objective of tests of details of transactions performed as tests of control is to

Evaluate whether controls operated effectively.

After obtaining an understanding of internal control and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor most likely decided that

It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.

In assessing control risk, an auditor ordinarily selects from a variety of techniques, including

Inspection and verification.

Which of the following types of evidence would an auditor most likely examine to determine whether controls are operating as designed?

Letters of representations corroborating inventory pricing.

Which of the following is not a step in an auditor’s assessment of control risk?

Consider whether controls can have a pervasive effect on financial statement assertions.

To obtain audit evidence about control risk, an auditor selects tests from a variety of techniques including

Which of the following is least likely to be evidence the auditor examines to determine whether controls are operating effectively?

Records documenting usage of computer programs.

Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain evidence in support of an assessed level of control risk below the maximum?

Comparing an entity’s uncollectible accounts expense to actual uncollectible accounts receivable.

The internal control provisions of the Sarbanes-Oxley Act of 2002 apply to which companies in the United States?

All issuer (public) companies and nonissuer (nonpublic) companies with more than $100,000,000 of net worth.

The framework most likely to be used by management in its internal control assessment under requirements of the Sarbanes-Oxley Act of 2002 is the

COSO enterprise risk management framework.

Which of the following is correct concerning the level of assistance auditors may provide in assisting management with its assessment of internal control?

Only very limited assistance may be provided.

Which of the following need not be included in management’s report on internal control under Section 404a of the Sarbanes-Oxley Act of 2002?

A statement that the company’s auditor has issued an audit report on the company’s internal control over financial reporting.

Which of the following is an accurate statement about internal control weaknesses?

Control deficiencies are also reportable conditions.

In an integrated audit, which of the following is defined as a weakness in internal control that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting?

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a misstatement of the company’s annual or interim financial statements of at least what amount will not be prevented or detected on a timely basis?

An amount greater than zero, but not significant.

The minimum likelihood of loss involved in the consideration of a control deficiency is

Assume that a company has a control deficiency regarding the processing of cash receipts. Reconciliation of cash accounts by a competent individual otherwise independent of the cash function might make the likelihood of a significant misstatement due to the control deficiency remote. In this situation, reconciliation may be referred to as what type of control?

According to Public Company Accounting Oversight Board Auditing Standard 5 (now 2201), what type of transaction involves establishing a loan loss reserve?

53. A procedure that involves the auditor’s following a transaction from its origination through the company’s processes, including information systems, until it is reflected in the company’s financial records, using the same documents and information technology that company personnel use, is referred to as a(an)

For purposes of an audit of internal control performed under Public Company Accounting Oversight Board standards, the “as of date” is ordinarily

The last day of the fiscal period.

Consider an issuer (public) company whose purchases are made through the Internet and by telephone. Which of the following is correct?

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

For an issuer (public) company audit of internal control, walkthroughs provide the auditor with primary evidence to

Evaluate the effectiveness of the design of controls and confirm whether controls have been places in operation

Which is most likely to be a question asked of employee personnel during a walk-through in an audit of the internal control of an issuer (public) company?

Have you ever been asked to override the process?

For purposes of an audit of internal control performed under Public Company Accounting Oversight Board requirements, an account is significant if it is

Reasonably possible that it could contain material misstatements.

A control deficiency that is more than a significant deficiency is most likely to result in what form of audit opinion relating to internal control?

Which of the following is most likely to be considered a material weakness in internal control for purposes of an internal control audit of an issuer (public) company.

An ineffective internal audit function.

Inability to evaluate internal control due to a circumstance-caused scope limitation relating to a significant account in a Sarbanes-Oxley Section 404 internal control audit is most likely to result in a(n)

Which of the following is most likely to indicate a significant deficiency relating to a client’s anti-fraud program?

Audit committee passivity when conducting oversight functions.

An auditor identified a material weakness in December. The client was informed and corrected it shortly after the “as of date” (December 31); the auditor agrees that the correction eliminates the material weakness as of January 31. The appropriate report under a PCAOB Standard 5 (now 2201) audit of internal control is

In an integrated audit, which of the following lead(s) to an adverse opinion on internal control?

In an integrated audit, what must the auditor communicate to the audit committee?

Known material weaknesses

In which manner are significant deficiencies communicated by the auditors to the audit committee under Public Company Accounting Oversight Board Standard 5 (now 2201)?

The communication must be in written form.

Which is correct concerning the external auditor’s use of the work of others in an audit of internal control performed for a public company?

Ordinarily the work of internal auditors and others is used primarily in low-risk areas.

In an integrated audit, which must the auditor communicate in writing to management?

Material weaknesses, significant deficiencies and other control deficiencies.

Which of the following is correct when applying a top-down approach to identify controls to test in an integrated audit?

For certain assertions, strong entity-level controls may allow the auditor to omit additional testing beyond those controls.

71. Which of the following is not included in a standard unqualified opinion on internal control over financial reporting performed under PCAOB requirements?

The [company name] management and audit committee are responsible for maintaining effective internal control over financial reporting.

Walk-throughs ordinarily provide evidence that helps the auditor to

Evaluate design effectiveness of controls, and confirm whether controls have been placed in operations.

Which of the following procedures would an auditor most likely perform to test controls relating to management’s assertion about the completeness of cash receipts for cash sales at a retail outlet?

Observe the consistency of the employee’s use of cash registers and tapes.

Sound internal control dictates that immediately upon receiving checks from customers by mail, a responsible employee should

Prepare a duplicate listing of checks received.

Tracing shipping documents to prenumbered sales invoices provides evidence that

Shipments to customers were properly invoiced.

Which of the following controls most likely would reduce the risk of diversion of customer receipts by an entity’s employees?

An auditor suspects that a client’s cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the

Dates checks are deposited per bank statements with the dates remittance credits are recorded.

Upon receipt of customers’ checks in the mailroom, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the

Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

Which of the following procedures most likely would not be a control designed to reduce the risk of misstatements in the billing process?

Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

Which of the following audit procedures would an auditor most likely perform to test controls relating to management’s assertion concerning the completeness of sales transactions?

Inspect the entity’s reports of prenumbered shipping documents that have not been recorded in the sales journal.

Which of the following controls most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?

Daily sales summaries are compared to daily postings to the accounts receivable ledger.

An auditor tests an entity’s policy of obtaining credit approval before shipping goods to customers in support of management’s financial statement assertion of

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

Which of the following controls most likely would be effective in offsetting the tendency of sales personal to maximize sales volume at the expense of high bad debt write-offs?

Employees involved in the credit-granting function are separated from the sales function.

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?

Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and

Deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts.

During the consideration of a small business client’s internal control, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?

The owner reviews credit memos after they are recorded.

When a customer fails to include a remittance advice with a payment, it is common practice for the person opening the mail to prepare one. Consequently, mail should be opened by which of the following four company employees?

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is

Stamped “paid” by the check signer.

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also

Is responsible for mailing the checks.

In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?

Which of the following controls is not usually performed in the vouchers payable department?

Accounting for unused prenumbered purchase orders and receiving reports.

With properly designed internal control, the same employee most likely would match vendor’s invoices with receiving reports and also

Recompute the calculation on vendors’ invoices.

An entity’s internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all

Cleared payments (i.e., canceled checks).

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases?

Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

For effective internal control, the accounts payable department generally should

Establish the agreement of the vendor’s invoice with the receiving report and purchase order.

Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

In obtaining an understanding of a manufacturing entity’s internal control over inventory balances, an auditor most likely would

Review the entity’s descriptions of inventory policies and procedures.

Which of the following controls most likely would be used to maintain accurate inventory records?

Periodic inventory counts are used to adjust the perpetual inventory records.

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably

Request the client to schedule the physical inventory count at the end of the year.

Which of the following controls most likely addresses the completeness assertion for inventory?

Receiving reports are prenumbered and periodically reconciled.

Sound internal control dictates that defective merchandise returned by customers should be presented initially to the

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate controls over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls could cause an

Understatement of revenues and receivables, and an overstatement of inventory.

Which of the following is a question that the auditor would expect to find on the production cycle section of an internal control questionnaire?

Are all releases by storekeepers of raw materials from storage based on approved requisition documents?

The objectives of internal control for a production cycle are to provide assurance that transactions are properly executed and recorded, and that

Custody of work in process and of finished goods is properly maintained.

A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?

Reconciling vendors’ monthly statements with subsidiary payable ledger accounts.

With well-designed internal control, employees in the same department most likely would approve purchase orders, and also

Negotiate terms with vendors.

Which of the following is not an inherent limitation of internal controls?

Which of the following is considered an inherent limitation of internal controls?

Which of the following most likely would not be considered as an inherent limitation of the effectiveness of a firm's internal control?

Which of the following factors most likely would be considered an inherent limitation?