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Auditing and Assurance Chapter 5

Terms in this set (34)

The most important People who operate the control system

fundamental component of an
entity's internal control is

The primary purpose for Determine the nature, timing, and extent of tests to
obtaining an understanding of be performed in the audit
a nonpublic audit client's
internal control is to

Effectiveness of audit Performing audit procedures during the interim

procedures would be reduced period as opposed to the fiscal year-end date
by

According to the PCAOB, Determine that the company's controls will satisfy
during the audit of internal the control objectives and can effectively prevent
controls for an issuer, the or detect errors or fraud that could result in material
ultimate objective of testing misstatements, if they operate as described.
the design effectiveness of
internal controls is to

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Auditing and Assurance ChapterConfirmation

To test the operating 5 of Balances........This is a substantive
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effectiveness of a control, an test, not a validity test

audit team, might use a
combination of each of the
tests EXCEPT for:

Which of the following is a Separation of Duties between the payroll and

preventive control? personnel departments

In most audits of large entities, Auditors will be able to reduce the cost of
control risk assessment substantive procedures by an amount more than the
contributes to audit efficiency, control evaluation costs.
which means that:

Which of the following is a An Internal Control Questionnaire (ICQ).....it is a

device designed to help the device for collecting evidence in the form of
audit team obtain evidence answers to control questions
about the accounting and
control activities of an audit
client?

Control Evaluation findings and subsequent audit

procedures.....it connects control evaluation findings
A bridge workpaper shows the of strengths to the test of control activities for
connection between? testing the strengths and control evaluation findings
of weakness to suggestions for substantive
procedures

Tests of Controls in a GAAS Obtaining evidence about the operating

Audit are required for: effectiveness of client control activities

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Auditing and Assurance ChapterAn5action taken by client personnel for the purpose
A transaction-level internal
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of preventing, detecting, and correcting errors and

control activity is best
frauds in transactions to eliminate or mitigate risks
described as:
identified by the company

When planning the audit of Identify significant accounts, locations, and

internal controls for an issuer, assertions in the PLANNING STAGE of an audit of
the audit team should: internal controls

A material weakness is a It is reasonablypossible that a material misstatement

situation which: would NOT be detected on a timely basis.

1. Whether there is a reasonble possibility that the

When completing the audit of
company's controls will fail to prevent or detect a
internal controls for an issuer,
misstatement of an account balance or disclosure

the severity of an internal

2. The magnitude of the potential misstatement
control deficiency depends on:
resulting from the deficiency or the deficiencies

Which of the following does Testing controls is required only for audits of public
NOT accuratelly summarize companies under AS 5. (PCAOB)
auditors' requirements
regarding internal control?

When completing the audit of AS 5 applies to financial reporting controls ONLY.

internal controls for an issuer,
the PCAOB requires auditors of
public companies to audit
internal controls over:

When completing the audit of AS 5 requires auditors to issue a report on the audit
internal controls for an issuer, of internal controls.
AS 5 requires auditors of public
companies to report on:

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Auditing and Assurance

When completing the audit of Chapter
AS55 requires testing for both design effectiveness
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internal controls for an issuer, and operating effectiveness.

AS 5 requires auditors to test:

Which of the following would Overproduction by the manufacturing plant.....This

probably NOT be considered does not directly relate to a material misstatement
an indicationof a material but it is an operational issue
weakness

Which report would NOT be Disclaimer of Opinion - Significant Deficiencies

appropriate for a public exist........A disclaimer is used when the auditor's
accounting firm to provide on scope is limited but not when significant
financial reporting controls? deficiencies exist, so it is not an appropriate report.

In principle, the payroll function should be divided

into its Authorization, Recording, and Custody
functions. Authorization of hiring, wage rates, and
The purpose of separating
deductions is provided by personnel. Authorization
duties of hiring personnel and
of hours worked (executed by employees) is
distributing payroll checks is to
provided by production. Based on these
...
authorizations, accounting calculates and records
the payroll. Based on the calculated amounts, the
treasurer prepares and distributes payroll checks.

Which of the following The report would be dates as of the day that
statements is NOT true with enough evidence has been gathered to support the
respect to the auditors' report auditors' opinion on the effectiveness of the entity's
on internal control over internal control.
financial reporting?

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Auditing and
If the auditors Assurance
encounter a ChapterDisclaimer
5 of Opinion....it is the reporting optionStudy
significant scope limitation in when a scope limitation exists
evaluating a public company's
internal control over financial
reporting, which of the
following types of opinions on
the effectiveness of the
company's internal control
over financial reporting would
be appropriate?

Which of the following Statements identifying the responsibility of the

information would be included auditor and management for internal control over
in the introductory paragraph financial reporting would be included in the
of the auditor's report on introductory paragraphs
internal control over financial
reporting if the report is
presented separately from the
auditors' report on the entity's
financial statements?

An entity's internal control Maintenance of control over unused checks.

consists of the policies and
procedures established to
provide reasonable assurance
that specific entity objectives
will be achieved. Only some of
these objectives, policies, and
procedures are relevant to a
financial statement audit. Which
one of the following would
most likely be considered for
testing in a financial statement
audit?

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Auditing and Assurance ChapterTreat

An internal control 5 is as pontential control weakness and perform
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questionnaire (ICQ) contains appropriate testing.

the following questions: "Does
a single individual receive and
list cash receipts and perform
posting to sales and general
ledgers?" What action should
an auditor take if the manager
of accounting responds "yes"
to the question?

The primary responsibility for Management

establishing and maintaining
internal controls rests with:

Which internal control A flowcharting approach

documentation method
provides the auditor with the
best visual understanding of a
system and can be used as a
means for analyzing complex
operations?

What are the factors included 1. Audit Committee

in an entity's internal control 2. Internal Audit Function

environment? 3. Management Tone at the Top

An auditor would most likely The entity's ability to process and summarize
be concerned with internal financial data.
control policies and
procedures that provide
reasonable assurance about:

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Auditing and
In addition to Assurance
gaining an ChapterDocument
5 their understanding of the internal Study

understanding of the internal control system.

controls for a private company,
and external auditor, at
minimum, would be expected
to:

An advantage of an internal Its relative ease of completion.

control questionnaire is:

Which of the following is an Procedures whose effectiveness depends on

inherent limitation of any separation of duties can be circumvented by
client's internal control? collusion.

Material errors or fraud would be prevented or

Internal controls are designed
detected and corrected within a timely period by
to provide reasonable
employees in the course of performing their
assurance that:
assigned duties.

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