The component of internal control that includes the formal procedures for reporting control deficiencies is:

A) Monitoring.

B) Information and communication.

C) Risk assessment.

D) Control activities.

Answer: Monitoring.

The components of internal control do not directly include:

A) Risk assessment.

B) Inflation adjustment.

C) Monitoring.

D) Control activities.

Answer: Inflation adjustment.

Separation of duties refers to:

A) Making each manager personally responsible for his/her department.

B) Keeping functions across different departments separate.

C) Preventing top management and lower-level employees from interacting.

D) Individuals who have physical responsibility for assets should not also have access to accounting records.

Answer: Individuals who have physical responsibility for assets should not also have access to accounting records.

The component of internal control that identifies internal and external factors that could prevent a company's objectives from being achieved is:

A) Monitoring.

B) Information and communication.

C) Risk assessment.

D) Control activities.

Answer: Risk assessment.

A framework for designing an internal control system is provided by the:

A) Committee of Sponsoring Organizations.

B) Financial Accounting Standards Board.

C) Securities and Exchange Commission.

D) International Accounting Standards Board.

Answer: Committee of Sponsoring Organizations.

The component of internal control that includes the policies and procedures that help ensure that management's directives are being carried out is:

A) Monitoring.

B) Information and communication.

C) Risk assessment.

D) Control activities.

Answer: Control activities.

When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on:

When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on:

a. neither answer is correct
b. both answers are correct
c. whether there is a reasonable possibility that the company's controls will fail to prevent or detect a misstatement of an account balance or disclosure
d. whether the account has a history of errors


Answer: c. whether there is a reasonable possibility that the company's controls will fail to prevent or detect a misstatement of an account balance or disclosure

A bridge work-paper shows the connection between

a. management objectives and accounting system procedures
b. control evaluation findings and subsequent audit procedures
c. financial statement assertions and tests of controls
d. management objectives and entity control activities


Answer: b. control evaluation findings and subsequent audit procedures

Which of the following does not accurately summarise auditor's requirements regarding internal control?

a. test controls- public entity yes; non public entity yes
b. documenting- public entity yes; non public entity yes
c. evaluating control risk- public entity yes; non public entity yes
d. understanding- public entity yes; non public entity yes


Answer: a. test controls- public entity yes; non public entity yes

The likelihood that material misstatements may have entered the accounting system and not been detected

The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as

a. risk of material misstatement
b. inherent risk
c. control risk
d. detection risk


Answer: a. risk of material misstatement

One of the typical characteristics of management fraud is

a. falsification of documents in order to misappropriate funds from an employer
b. conversion of stolen inventory to cash deposited in a falsified bank account
c. victimisation of investors through the use of materially misleading financial statements
d. illegal acts committed by management to evade laws and regulations


Answer: c. victimisation of investors through the use of materially misleading financial statements

Which of the following circumstances would most likely cause an audit team to perform extended procedures?

a. supporting documents are produced when requested
b. the company has recently hired a new chief financial officer after the previous on retired
c. the company maintains several different petty cash funds
d. the client made several large adjustments at or near year-end


Answer: d. the client made several large adjustments at or near year-end