Which of the following is (are) true on understanding the entity’s internal control?

The auditor’s primary consideration is whether, and how, a specific control prevents, detects and corrects,
material misstatements in classes of transactions, account balances or disclosures caused by error only.

All of the choices

To understand an entity’s control, the auditor will evaluate the operating effcetiveness of internal control.

The heavisest emphasis of the auditors is on controls over classes of transactions rather than account balnaces
or disclosures.

Regardless of the assessed level of control risk, an auditor would perform some

tests of control policies and procedures in order to determine their operating effectiveness.

dual-purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

substantive tests to restrict detection risk for significant transaction classes.

analytical procedures to verify the design of controls.

Which of the following questions would an auditor most likely include in an internal control questionnaire for
notes payable?

Are the proceeds from notes payable used for the purchase of noncurrent assets?

Are direct borrowings on notes payable authorized by the board of directors?

Are assets that collateralize notes payable critically needed for the entity‘s continued existence?

Are two or more authorized signatures required on checks that repay notes payable?

. Which method provides the auditor with the best visual grasp of a system and a means for analyzing complex
operations?

A questionnaire approach

A flowcharting approach

A decision table

A detailed narrative approach

Reportable conditions are matters that come to an auditor's attention and that should be communicated to an
entity's audit committee because they represent

material irregularities or illegal acts perpetrated by management

significant deficiencies in the design or operation of internal control

intentional attempts by client personnel to limit the scope of the auditor's work

flagrant violations of the entity's documented conflict-of-interest policies

A technique to identify risks involving identifying and prioritizing high risk activities includes all of the following
except:

not identifying essential resources that would cause the entity of not achieving its objectives

review the risks that have been arisen in the past

seek to anticipate any changes by considering problems and opportunities on a continuing basis

identify possible obligations that will result to an outflow of resources which may arise

An independent auditor has concluded that the client's records, procedures and representations can be relied
upon based on tests made during the year when internal control was found to be effective. The auditor should test
the records, procedures, and representations again at year-end if:

Unusual transactions occurred subsequent to the completion at the interim audit work

Comparisons of year-end balances with like balances at prior dates revealed significant fluctuations

Client records are in a condition that facilitates effective and efficient testing

Inquiries and observations lead the auditor to believe that conditions have changed significantly

. Process of asking for an explanation from the client relating to the control process or transactions.

Reperformance

Inquiry

Inspection

Observation

Which of the following is a test of control?

Recalculating the amount of interest expense on the borrowings made for the acquisition of equipment

Performing bank reconciliation to know discrepancies between ledger and bank balances

Asking the senior level management on the approval of recently acquired equipment

Vouching the balances of equipment to its supporting documents to know any overstatements

After obtaining an understanding of the client's internal control, the auditor should consider whether

the evidential matter obtained from the study of the internal control system can provide a reasonable basis for an
opinion

further testing of internal control procedures is likely to permit further reduction in the assessed-level of
control risk

the projected degree of effectiveness of internal control is justified

 sufficient knowledge has been obtained about the entity's entire system of internal control

Which of the following statements is false?

After performing tests of controls, the auditor may not always assess control risk at maximum

Tests of controls are necessary if the auditor plans to use the primarily substantive approach

The auditor can simultaneously obtain an understanding of internal control and perform tests of controls

Tests of controls are necessary if the auditor plans to assess the level of control risk below the maximum

Which of the following test of control will help the auditor about the existence assertion of an account?

Footing

Vouching

Haching

Tracing

A procedure that involves tracing a transaction from its origination through the company's information systems is
referred to as a (n):

Walkthrough

Inquiry/analysis approach

Re-analysis approach

Remediation