Which report would not be appropriate for a public accounting firm to provide on financial reporting controls?

Which report would not be appropriate for a public accounting firm to provide on financial reporting controls?

a. unqualified-- no material weaknesses found
b. disclaimer of opinion-- significant deficiencies exist
c. adverse-- material weaknesses exist
d. disclaimer of opinion-- unable to perform all necessary procedures


Answer: b. disclaimer of opinion-- significant deficiencies exist

A material weakness is a situation in which

a. it is reasonably possible that a material misstatement would not be detected on a timely basis
b. it is reasonably possible that an immaterial misstatement would not be detected on a timely basis
c. there is a remote likelihood that a material misstatement would not be detected on a timely basis
d. it is probable that an immaterial financial statement misstatement would not be detected on a timely basis


Answer: a. it is reasonably possible that a material misstatement would not be detected on a timely basis

When planning the audit of internal controls for an issuer, the audit team should

a. identify significant accounts, locations, and assertions
b. re-perform control activities performed by client employees to determine their effectiveness
c. conduct a walkthrough of the internal control process
d. make inquiries of employees regarding the existence of control activities


Answer: a. identify significant accounts, locations, and assertions

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 purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the

The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the

a. administrative controls from the internal accounting controls
b. authorisation of transactions from the custody of related assets
c. human resources function from the controllership function
d. operational responsibility fro, the record-keeping responsibility


Answer: b. authorisation of transactions from the custody of related assets

Tests of controls in a GAAS audit are required for

a. obtaining evidence about the financial statement assertions
b. obtaining evidence about the operating effectiveness of client control activities
c. accomplishing control over the occurrence of recorded transactions
d. applying analytical procedures to financial statement balances


Answer: b. obtaining evidence about the operating effectiveness of client control activities

A transaction-level internal control activity is best described as

a. a method for recording, summarising, and reporting financial information
b. an action taken by auditors to obtain evidence
c. the functioning of the board of directors in support of its audit committee
d. an action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eliminate or mitigate risks identified by the company


Answer: d. an action taken by client personnel for the purpose of preventing, detecting, and correcting errors and frauds in transactions to eliminate or mitigate risks identified by the company

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

Which of the following is a device designed to help the audit team obtain evidence about the accounting and control activities of the client?

Which of the following is a device designed to help the audit team obtain evidence about the accounting and control activities of the client?

a. all of the answers are correct
b. an internal control questionnaire
c. a flowchart of the documents and procedures used by the company
d. a narrative memorandum describing the control system


Answer: b. an internal control questionnaire

The primary purpose for obtaining an understanding of a nonpublic audit client's internal control is to

a. provide the rational for the inherent risk assessment at the financial statement assertion level
b. provide information for a communication of internal control-related matters to management
c. provide a basis for making constructive suggestions in a management letter
d. determine the nature, timing and extent of tests to be performed in the audit



Answer: d. determine the nature, timing and extent of tests to be performed in the audit

The most important fundamental component of an entity's internal control is

a. reliability of financial reporting
b. people who operate the control system
c. compliance with laws and regulations
d. effectiveness and efficiency of operations


Answer: b. people who operate the control system

To test the operating effectiveness of a control, an audit team might use a combination of each of the following tests except

To test the operating effectiveness of a control, an audit team might use a combination of each of the following tests except

a. confirmation of balances
b. inspection of documentation
c. inquiry of client personnel
d. observation of company operations


Answer: a. confirmation of balances

Effectiveness of audit procedures would be reduced by

a. performing procedures during the interim period as opposed to at the fiscal year-end date
b. performing audit procedures at the fiscal year-end date as opposed to the interim period
c. deciding to obtain external evidence instead of internal evidence
d. selecting larger sample sizes for audit


Answer: a. performing procedures during the interim period as opposed to at the fiscal year-end date

An audit committee is

a. a committee composed of persons not associating in any way with the client or the board of directors
b. composed of internal auditors
c. composed of members of a company's board of directors who are not involved in the day-to-day operations of the company
d. composed of members of the audit team


Answer: c. composed of members of a company's board of directors who are not involved in the day-to-day operations of the company

When auditors become aware of noncompliance with a law or regulation committed by client personnel, the primary reason that the auditors

When auditors become aware of noncompliance with a law or regulation committed by client personnel, the primary reason that the auditors should obtain a better understanding of the nature of the act is to

a. determine whether to contact law enforcement officials
b. recommend remedial actions to the audit committee
c. evaluate the effect of the noncompliance on the financial statements
d. determine whether other similar acts could have occurred


Answer: c. evaluate the effect of the noncompliance on the financial statements

Auditors perform analytical procedures in the planning stage of an audit for the purpose of

a. identifying unusual conditions that deserve more auditing effort
b. determining which of the financial statement assertions are the most important for the client's financial statements
c. determining the nature, timing, and extent of audit procedures for auditing the inventory
d. deciding that matters to cover in an engagement letter


Answer: a. identifying unusual conditions that deserve more auditing effort

Which of the following statements best describes auditors' responsibility for detecting a client's noncompliance with a law or regulation?

a. auditors must design tests to detect all noncompliance that directly affects the financial statements
b. auditors must design tests to obtain reasonable assurance that all noncompliance with direct material statement effects is detected
c. the responsibility for detecting noncompliance exactly parallels the responsibilities for errors and fraud
d. auditors must design tests to detect all material noncompliance that indirectly affects the financial statements


Answer: b. auditors must design tests to obtain reasonable assurance that all noncompliance with direct material statement effects is detected