Question

1. Many smaller businesses, not-for-profit organizations, and smaller governments _______.

Group of answer choices

a.may have inadequate segregation of duties,which results in weak internal controls over cash

b.may have adequate segregation of duties,which results in weak internal controls over cash

c.may have inadequate segregation of duties,which results in strong internal controls over cash

d. utilize their own internal audit function to attest to the accuracy and fairness of their financial statements

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

Group of answer choices

a. increase the extent of tests of controls over inventory.

b. observe the client's inventory count at an interim date.

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

d. insist that the client perform physical counts of inventory items several times during the year.

3. An audit of inventory _______.

a. will vary from client to client

b. is prescribed by GAAP standards, which must be adhered to closely

c. is a systematic approach, and rarely varies between clients

d. is typically left to the internal auditors

Answer 1

1.)  Many smaller businesses, not-for-profit organizations, and smaller governments ______________

Option A is correct. May have inadequate segregation of duties,which results in weak internal controls over cash. Since the business size and resources are small, these tend to have inadequate segregation of duites, where maintenance of cash would be a challenge.

Option B is incorrect. Since they are small businessess, rarely will they have effective controls over cash.

Option C is incorrect. The choice is not logical. Inadequate segregation of duties will probably never result in strong internal controls over cash.

Option D is incorrect. The small business , not for profit organizations, etc would not use any internal audit function as such, as their size of operations is pretty small.

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

Option A is incorrect. Increasing the extent of test of controls over inventory would not be required when the assessed level of control risk is low.

Option B is correct. Observe the client's inventory count at an interim date. The assessed level of control risk for the inventory is low and as such would encourage the auditor to peform substantive procedures/control testing at tn interim date as accounts with high risk can be focussed more during the year with incremental testing being performed for others.

Option C is incorrect. As mentioned in above point, the auditor can focus his attention on high or significant risk items during the year end and as such can complete the test of controls over inventory at an interim date.

Option D is incorrect. This is not a requirement in this situation.

3.)   An audit of inventory _______________

Option A is correct. Will vary from client to client. The procedures that the auditors perform are independently determined by the auditors. based on a variety of factors like type of inventory, value of inventories, etc and as such will vary from company to company.

Option B is incorrect. GAAP has given suggestive standards which should be considered by auditors in defining the strategy to be followed during the audit of inventory. However, it is not necessary to strictly follow these standards.

Option C is incorrect. As mentioned in A above, the audit of inventory among companies is based on a variety of factors like type of inventory, value of inventories, etc and as such will vary from company to company.

Option D is incorrect. Internal auditors cannot have any say on the work decided to be performed by the external auditors.