Having management periodically determine whether the amount of physical assets of the company match the accounting records is an example of which detective control?

A) Separation of duties.

B) Reconciliations.

C) Performance reviews.

D) Employee management.

Answer: Reconciliations.

Which employees have an impact on the operation and effectiveness of internal controls?

A) Upper management.

B) Mid-level managers.

C) Lower-level employees.

D) All employees.

Answer: All employees.

Allowing only certain individuals to have passwords to conduct online purchases is an example of which preventive control?

A) Separation of duties.

B) Physical controls.

C) E-commerce controls.

D) Employee management.

Answer: E-commerce controls.

What is the concept behind separation of duties in establishing internal controls?

A) The company's financial accountant should not share information with the company's tax accountant.

B) Duties of middle-level managers should be clearly separated from those of top executives.

C) Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

D) The external auditors of the company should have no contact with managers while the audit is taking place.

Answer: Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

Which of the following is not an example of preventive controls?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Reconciliations.

Answer: Reconciliations.

Which of the following is an example of detective controls?

A) Separation of duties.

B) Physical controls.

C) Proper authorization.

D) Reconciliations.

Answer: Reconciliations.

The Sarbanes-Oxley Act (SOX) mandates which of the following?

A) Increased regulations related to auditor-client relations.

B) Increased regulations related to internal control.

C) Increased regulations related to corporate executive accountability.

D) All of the other answers represent mandates of the Sarbanes-Oxley Act.

Answer: All of the other answers represent mandates of the Sarbanes-Oxley Act.

Which of the following is NOT a design feature of effective internal controls?

A) Allow greater reliance by investors on reported financial statements.

B) Prevent fraudulent or errant financial reporting.

C) Ensure the company's price advantage over competitors.

D) Prevent misuse of company funds by employees.

Answer: Ensure the company's price advantage over competitors.

Which of the following best describes the goal of internal controls?

A) Ensuring the business is profitable.

B) Enhancing the health of employees.

C) Improving the accuracy and the reliability of financial information.

D) Ensuring the compliance with tax regulations.

Answer: Improving the accuracy and the reliability of financial information.

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

According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal

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