Question

14. Which of the following types of evidence will be gathered in order to test internal controls?

                  A. Confirmations of accounts receivable with customers
                  B. Observation of client personnel receiving inventory shipments
                  C. Observation of inventory counts
                  D. Inquiry of management regarding significant litigation

15. Which of the following statements is true?

                          A. tests of controls are necessary if the auditors plans to use the primarily substantive approach
                          B. Tests of controls are necessary if the auditor plans to assess the level of control risk at maximum
                           C. The auditor can simultaneously obtain an understanding of internal control and perform tests of controls
                           D. After performing tests of controls, the auditor will always assess control risk at maximum balances

16. Which of the following statements about tests of controls is not valid?

                A. The auditor may perform inquiry and observation and gathering evidence about the operating effectiveness of the control

                B.   Ordinarily, making inquiries provides more reliable audit evidence than doing observation when testing segregation of functional responsibilities

                C. Audit evidence obtained by doing observation pertains only to the point in time at which the procedure was applied

                D. Observation of who applies a control procedure is useful as a test of control procedures when evaluating control effectiveness of both computerized and manual system

17. Which of the following is a step in an auditor’s decision to assess control risk at below the maximum?

               A. Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls

               B. Perform tests of details of transactions and account balances to identify potential errors and fraud

               C. Identify specific controls that are likely to detect or prevent material misstatements
               D. Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing

18. Which of the following statements concerning control risk is correct?

A. assessing control risk and obtaining an understanding of an entity’s internal control may be performed concurrently
B. When control risk is at the maximum level an auditor is required to document the basis for that assessment
C. Control risk may be assessed sufficiently low to eliminate substantive testing for significant transaction classes
D. When assessing control risk, an auditor should not consider evidence obtained in prior audits about the operation of    controls

19. In the assessment of control risk, the auditor is basically concerned that the client’s internal control provides reasonable assurance that

              A. management cannot override the system
              B. operational efficiency has been achieved in accordance with management plans
              C. errors and fraud have been prevented or detected
              D. controls have not been circumvented by collusion

20. Which of the following is one of the most fundamental and effective controls?

A. Increased use of computers for recording accounting transactions
              B. Increased reliance on internal auditors to monitor accounting systems
              C. Segregation of incompatible duties across several people
              D. Having internal auditors report only to the board of directors

21. Which circumstance would be consistent with both the planned assessed level and the assessed level of control risk being low?

           A. No test of controls have been performed
           B. Tests of controls have been performed
           C. Externally generated evidence supports management’s contentions relating to internal control
           D. The results of the consideration of internal control suggest that controls are not operating effectively

22. Which of the following is not a strong indicator of the existence of a material weakness in internal control?

           A. An ineffective control environment
           B. An ineffective internal audit function
           C. Inadequate controls over the selection of the best investment opportunities
           D. Ineffective oversight of external reporting by the audit committee

23. An auditor may decide to assess control risk at the maximum level for certain assertions because he believes

           A. sufficient evidential matter to support the assertions is likely to be available
           B. evaluating the effectiveness of policies and procedures is inefficient
           C. more emphasis on tests of controls than substantive tests is warranted
           D. considering the relationship of assertions to specific account balances is more efficient

24. The assessment of control risk can be made at any of the following times except:

           A. Immediately after obtaining an understanding of internal control
           B. After some tests of controls are performed concurrently with obtaining an understanding
           C. After the performance of additional tests of controls designed to further lower the assessment of control risk
           D. After performing all the necessary substantive tests

25. Which of the following statements is true? If control risk is assessed at the maximum, the

           A. Nature of related substantive tests should be changed from more to less effective
           B. Nature of related substantive tests should be changed from less to more effective
           C. Timing of related substantive tests should be changed from year-end tin an interim date
           D. Extent of related substantive testes should be changed from a larger to smaller sample

Answer 1

14) Which of the following types of evidence will be gathered in order to test internal controls?

A. Confirmations of accounts receivable with customers

15. Which of the following statements is true?

B. Tests of controls are necessary if the auditor plans to assess the level of control risk at maximum

16. Which of the following statements about tests of controls is not valid?

B. Ordinarily, making inquiries provides more reliable audit evidence than doing observation when testing segregation of functional responsibilities

17. Which of the following is a step in an auditor’s decision to assess control risk at below the maximum?

D. Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing

18. Which of the following statements concerning control risk is correct?

A. assessing control risk and obtaining an understanding of an entity’s internal control may be performed concurrently

19. In the assessment of control risk, the auditor is basically concerned that the client’s internal control provides reasonable assurance that

C. errors and fraud have been prevented or detected

20. Which of the following is one of the most fundamental and effective controls?

C. Segregation of incompatible duties across several people

22. Which of the following is not a strong indicator of the existence of a material weakness in internal control?

C. Inadequate controls over the selection of the best investment opportunities

23. An auditor may decide to assess control risk at the maximum level for certain assertions because he believes

B. evaluating the effectiveness of policies and procedures is inefficient

24. The assessment of control risk can be made at any of the following times except:

D. After performing all the necessary substantive tests

25. Which of the following statements is true? If control risk is assessed at the maximum, the

B. Nature of related substantive tests should be changed from less to more effective