35.
PCAOB Standard 2 requires auditors to evaluate the effectiveness of the audit
committee’s oversight of the company’s:
a
a.
b.
c.
d.
36.
c
37.
a
38.
b
39.
b
40.
c
41.
External financial
reporting
Yes
No
Yes
No
Efficiency of
operations
No
No
Yes
Yes
Internal control over financial
reporting
Yes
Yes
No
No
Which of the following is correct?
a. Approval is a policy decision implemented by employees.
b. Approval occurs as a matter of general policy and includes significant transactions
only.
c. Authorization is a policy decision for either a general class of transactions or
specific transactions.
d. Approval should be given by the employee responsible for recording the
transaction.
Which of the following principles is not necessary for the proper design and use of
documents and records?
a. Designed for a single use to increase efficiency of operations.
b. Constructed in a manner that encourages correct preparation.
c. Prepared at the time a transaction takes place.
d. Designed for multiple uses to increase efficiency of operations.
Narratives, flowcharts, and internal control questionnaires are three common methods
of:
a. testing the internal controls.
b. documenting the auditor’s understanding of internal controls.
c. designing the audit manual and procedures.
d. documenting the auditor’s understanding of a client’s organizational structure.
_____ deal with ongoing or periodic assessment of the quality of internal control by
management.
a. Quality monitoring activities
b. Monitoring activities
c. Oversight activities
d. Management activities
Smaller public companies face challenges implementing effective internal control due
to ______.
a. a lack of expertise
b. reduced importance
c. limited resources
d. limited available guidance
Which of the following is not one of the levels of an absence of internal controls?
a
a.
b.
c.
d.
Major deficiency.
Material weakness.
Significant deficiency.
Control deficiency.
42.
a
Which of the following is the correct definition of “control deficiency?”
a. A control deficiency exists if the design or operation of controls does not permit
company
personnel to prevent or detect misstatements on a timely basis.
b. A control deficiency exists if one or more deficiencies exist that adversely affect a
company’s ability to prepare external financial statements reliably.
c. A control deficiency exists if the design or operation of controls results in a more
than remote likelihood that controls will not prevent or detect misstatements.
d. A control deficiency exists if the design or operation of controls results in a more
than probable likelihood that controls will prevent or detect misstatements.
43.
A(n) _______ deficiency exists if a necessary control is missing or not properly
formulated.
a. control
b. significant
c. design
d. operating
c
44.
To determine if significant internal control deficiencies are material weaknesses, they
must be evaluated on their:
a
a.
b.
c.
d.
45.
Likelihood
Yes
No
Yes
No
The purpose of an entity’s accounting information and communication system is to
______.
d
a.
b.
c.
d.
46.
b
Significance
Yes
No
No
Yes
Monitor
transactions
Yes
No
Yes
No
Record and
process
transactions
Yes
No
No
Yes
Initiate transactions
Yes
No
No
Yes
A procedure that would most likely be used by an auditor in performing tests of control
procedures that involve segregation of functions and that leave no transaction trail is:
a. inspection.
b. observation.
c. reperformance.
d. reconciliation.
47.
b
48.
b
49.
d
50.
d
If the results of tests of controls support the design and operations of controls as
expected, the auditor uses ____ control risk as the preliminary assessment.
a. a lower
b. the same
c. a higher
d. either a lower or higher
Internal controls normally include procedures designed to provide reasonable assurance
that:
a. employees act with integrity when performing their assigned tasks.
b. transactions are executed in accordance with management’s authorization.
c. decision processes leading to management’s authorization of transactions are
sound.
d. collusive activities would be detected by segregation of employee duties.
Which of the following is correct?
a. A significant deficiency is always a material weakness.
b. A control deficiency is always a material weakness.
c. A material weakness is less significant that a control deficiency.
d. A material weakness is always a significant deficiency.
Which of the following is not a likely procedure to support the operating effectiveness
of internal controls?
a. Inquiry of client personnel.
b. Observation of control-related activities.
c. Reperformance of client procedures.
d. Completing an internal control questionnaire.