Question 1

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It is the task of defining risk, identifying risks, assessing this risks for impact and
materiality and then devising suitable ways for dealing with more significant
risks.

Question 1Answer

a.
Risk Management

b.
Internal Control

c.
Audit Documentation

d.
Substantive Testing

Question 2
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Which of the following best describe the interrelated components of internal
control?

Question 2Answer

a.
Legal environment of the firm, management philosophy, and organizational
structure.

b.
Organizational structure, management philosophy, and planning.

c.
Control environment, risk assessment, control activities, information and
communication systems, and monitoring.
d.
Risk assessment, backup facilities, responsibility accounting and natural laws.

Question 3
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Proper segregation of functional responsibilities calls for separation of the
functions of

Question 3Answer

a.
Authorization, execution, and recording.

b.
Custody, execution, and reporting.

c.
Authorization, execution, and payment.

d.
Authorization, payment, and recording.

Question 4
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The ultimate purpose of assessing control risk is to contribute to the auditor’s
evaluation of the risk that?

Question 4Answer

a.
Tests of controls may fail to identify controls relevant to assertions.

b.
Material misstatements may exist in the financial statements.

c.
Entity policies may be overridden by senior management.

d.
Specified controls requiring segregation of duties may be circumvented by
collusion.

Question 5
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Which of the following statements is an example of an inherent limitation of
internal control.

Question 5Answer

a.
The effectiveness of control procedures depends on segregation of duties.

b.
Procedures are designed to assure that transactions are executed as
management authorities.

c.
Computers process large numbers of transactions.

d.
Errors may arise from mistakes in judgments.

Question 6
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Which of the following statements about internal control is incorrect?

Question 6Answer

a.
Internal control is geared to achieving objectives in the overlapping categories
of financial reporting, compliance and operations.

b.
Internal control is expected to provide absolute assurance

c.
Internal control is effected by people

d.
Internal control is a process

Question 7
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Act as a vehicle for capturing all the assessment and decisions made in respect
of identified risks.

Question 7Answer

a.
Evidence

b.
Risk appetite

c.
Action plan

d.
Risk register

Question 8
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Is a process of assessing the quality of internal control performance over time. It
involves assessing the design and operation of controls on a timely basis and
taking necessary corrective actions.

Question 8Answer

a.
Control Activities
b.
Risk Assessment

c.
Control Environment

d.
Monitoring

Question 9
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It benefits an entity’s internal control by enabling an entity to

Question 9Answer

a.
Reduce the risk that controls will be circumvented

b.
Rely on systems or programs that are inaccurately processing data

c.
Allow unauthorized changes to data in master files.

d.
Process large, unusual or non-recurring transactions

Question 10
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Which of the following activities would be least likely to strengthen a company’s
internal control?

Question 10Answer

a.
Maintaining insurance for fire and theft.
b.
Carefully selecting and training employees.

c.
Fixing responsibility for the performance of employee duties.

d.
Separating accounting from other financial operations.

Question 11
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In performing a walk-through test, the

Question 11Answer

a.
The auditor performs a physical review of the entity's property, plant, and
equipment to confirm the physical location of major assets.

b.
Auditor traces one or several transactions within each major class through that
transaction trail to confirm his or her understanding of the information system
and control procedures.

c.
Auditor traces one or several transactions within each major class through the
transaction trail to confirm the cut off period.

d.
Senior auditor "walks-through" the processing of the entity's transactions with
other members of the audit team focusing on the control processes which aim to
prevent misstatements in the financial statements

Question 12
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Tests of controls are performed to obtain audit evidence about the effectiveness
of the

Question 12Answer

a.
Design of the internal controls in eliminating fraud and errors.

b.
Operation of the internal controls at the time the tests are being applied.

c.
Design of the accounting and internal controls systems.

d.
Operations of the internal controls in eliminating fraud and errors.

Question 13
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Audit evidence concerning segregation of duties ordinarily is best obtained by?

Question 13Answer

a.
Obtaining a flowchart of activities performed by available personnel.

b.
Performing tests of transactions that corroborate management’s financial
statement assertions

c.
Developing audit objectives that reduce control risk.

d.
Observing the employees as they apply specific controls.

Question 14
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 Question text
This internal control component is the foundation for all other components. It
sets the tome of the organization, provides discipline and structure, and
influences the control consciousness of employees.

Question 14Answer

a.
The entity’s risk assessment process

b.
Control activities

c.
Control environment

d.
Monitoring of controls

Question 15
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A classification of risk that deals with Information Technology

Question 15Answer

a.
Operational

b.
Strategic

c.
Financial

d.
Compliance

Question 16
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 Question text
Which of the following is correct about internal control?

Question 16Answer

a.
Management does not consider costs of the accounting and internal control
systems.

b.
Accounting and internal control systems provide management with conclusive
evidence that objectives are reached.

c.
Most internal controls tend to be directed at non-routine transactions.

d.
One of the inherent limitations of accounting and internal control systems is the
possibility that the procedures may become inadequate due to changes in
conditions, and compliance with procedures may deteriorate.

Question 17
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Internal control should provide reasonable (but not necessarily absolute)
assurance which means that:

Question 17Answer

a.
Internal control is management’s, not auditor’s, responsibility.

b.
The cost of control activities should not exceed the benefits.

c.
There is always a risk that reportable conditions may result in material
misstatements.

d.
An attestation engagement about management’s internal control assertions
may not necessarily detect all reportable conditions.
Question 18
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Which of the following statements concerning physical controls is incorrect?

Question 18Answer

a.
Access often extends beyond the entity’s employees to customers and suppliers
through remote terminals.

b.
In systems with online entry of data, many users may have access through
remote input devices.

c.
Physical controls limit access to assets and important records.

d.
Access to computer hardware should not be limited to authorized personnel.

Question 19
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The auditor should consider whether the assessment of control risk is confirmed

Question 19Answer

a.
Upon the conclusion of the audit, based on the results of substantive procedures
and other audit evidence obtained.

b.
Upon completion of tests of controls

c.
Upon completion of understanding of internal control.

d.
Before the final audit program is completed.

Question 20
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Internal control should provide reasonable (but not necessarily absolute)
assurance which means that:

Question 20Answer

a.
Internal control is management’s, not auditor’s, responsibility.

b.
The cost of control activities should not exceed the benefits.

c.
There is always a risk that reportable conditions may result in material
misstatements.

d.
An attestation engagement about management’s internal control assertions
may not necessarily detect all reportable conditions.

Question 21
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The following are components of internal control, except

Question 21Answer

a.
Entity’s risk assessment process

b.
Business Risk

c.
Control activities
d.
Control environment

Question 22
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Internal control procedures are not designed to provide reasonable assurance
that

Question 22Answer

a.
Transactions are executed in accordance with management's authorization.

b.
Access to assets is permitted only in accordance with management's
authorization.

c.
The recorded accountability for assets is compared with the existing assets at
reasonable intervals.

d.
Irregularities will be eliminated.

Question 23
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Control activities include those that relate to physical controls over access to
and use of assets and records. A departure from the purpose of physical controls
is that

Question 23Answer

a.
Access to safe-deposit box requires two officers

b.
Only sales personnel use sales department vehicles

c.
The mail room clerk compiles a list of the checks received in the incoming mail

d.
Only warehouse personnel and production supervisors have access to raw
materials storeroom

Question 24
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It is the process designed, implemented and maintained by those charged with
governance, management, and other personnel to provide reasonable
assurance about the achievement of the entity’s objectives.

Question 24Answer

a.
Internal Control

b.
Internal Auditing

c.
Business Strategy

d.
Accounting Process

Question 25
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Which of the following controls would be the most appropriate means to ensure
that terminated employees had been removed from the payroll?

Question 25Answer

a.
Reconciling payroll and time-keeping records.

b.
Establishing direct-deposit procedures with employees' banks.

c.
Mailing checks to employees' residences.

d.
Establishing computerized limit checks on payroll rates.

Question 26
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After obtaining an understanding of internal control and assessing control risk,
an auditor decided not to perform additional tests of controls. The auditor most
likely concluded that the?

Question 26Answer

a.
Additional evidence to support a further reduction in control risk was not cost-
beneficial to obtain.

b.
Assessed level of inherent risk exceeded the assessed level of control risk.

c.
Evidence obtainable through tests of controls would not support an increased
assessment of control risk.

d.
Internal control was properly designed and justifiably may be relied on.

Question 27
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Which of the following is a responsibility that should not be assigned to only one
employee?
Question 27Answer

a.
Reconciliation of bank statement.

b.
Access to securities in the company’s safe deposit box.

c.
Custodianship of the cash working fund.

d.
Custodianship of tools and small equipment

Question 28
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Effective internal control?

Question 28Answer

a.
Is unaffected by changing circumstances and conditions encountered by the
organization.

b.
Reduces the need for management to review exception reports on a day-to-day
basis.

c.
Cannot be circumvented by management.

d.
Eliminates risk and potential loss to the organization.

Question 29
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In an auditor’s consideration of internal control, the completion of a
questionnaire is most closely associated with which of the following?

Question 29Answer

a.
Understanding the system

b.
Flowchart accuracy

c.
Tests of controls

d.
Separation of duties

Question 30
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When considering internal control, the auditor’s primary concern is to determine

Question 30Answer

a.
The possibility of fraud occurring.

b.
The reliability of the accounting information system.

c.
Compliance with policies, plans, and procedures.

d.
The type of an opinion he will issue.