According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to
a. determine that the company's employees are processing the controls according to the policy and procedure manuals at the company
b. determine whether the company's controls are processing company data effectively
c. determine that the company's controls will satisfy the company's control objectives and can effectively prevent or detect errors and fraud that could result in material misstatements, if they operate as prescribed
d. none of the answers are correct
Answer: c. determine that the company's controls will satisfy the company's control objectives and can effectively prevent or detect errors and fraud that could result in material misstatements, if they operate as prescribed
Which of the following is a preventative control?
a. detailed fluctuation analysis completed by the CFO for revenue
b. separation of duties between the payroll and personnel departments
c. recalculation of a sample of payroll entries by internal auditors
d. reconciliation of a bank account
Answer: b. separation of duties between the payroll and personnel departments
In most audits of large entities, control risk assessment contributes to audit efficiency, which means that
a. auditors will be able to reduce the cost of substantive procedures by an amount less than the costs of tests of controls
b. the cost of control evaluation will exceed the cost of substantive procedures
c. the cost of substantive procedures will exceed the cost of control evaluation work
d. auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs
Answer: d. auditors will be able to reduce the cost of substantive procedures by an amount more than the control evaluation costs
