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AUDTHEO Chapter-11-Test-Questions-and-Answers

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13 views

AUDTHEO Chapter-11-Test-Questions-and-Answers

Uploaded by

Micah Danielle S. TORMON
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAPTER 11: TEST QUESTIONS WITH ANSWERS

1. The fundamental purpose of an internal control is to


A. Safeguard the resources of the organization
B. Provide reasonable assurance that the objectives of the organization are achieved
C. Encourage compliance with organization objectives
D. Ensure the accuracy, reliability, and timeliness of information.
2. Inherent limitations in an internal control must be considered in evaluating the effectiveness in
preventing and detecting errors and fraud. Inherent limitations do not include
A. Misunderstanding of instructions, mistakes of judgment, personal carelessness,
distraction, or fatigue
B. Incompatible functions performed by the same person
C. Collusion among employees
D. Management override of certain policies or procedures
3. The following statements relate to control activities. Which is false?
A. The organization selects and develops general control activities over technology to support
achievement of objectives.
B. Deploys control activities through clear policies that outline expectations and procedures
that put those policies into action.
C. The organization selects and develops control activities that contribute to the mitigation of
risks to the achievement of objectives to increased levels.
D. None of the above.
4. Which of the following internal control objectives would be most relevant to the audit?
A. Operational objective
B. Compliance objective
C. Administrative control objective
D. Financial reporting objective
5. Internal controls can never be regarded as completely effective. Even if company personnel could
design an ideal system, its effectiveness depends on what aspect? Choose the best answer.
A. Adequacy of the software and computer system
B. Proper implementation by management
C. Ability of the internal audit staff to maintain it
D. Competency and dependability of the people using it

6. How does the adequacy or inadequacy of an organization's internal control system affect the
audit procedures performed by auditors?

A. If internal controls are deemed adequate, auditors may reduce the extent of substantive
testing and focus more on controls testing.
B. If internal controls are inadequate, auditors can rely more on the organization’s financial
statements and perform less detailed testing.
C. If internal controls are adequate, auditors must perform additional testing of
transactions to ensure accuracy.
D. If internal controls are inadequate, auditors will always issue a qualified opinion,
regardless of financial statement accuracy.
7. What should be included in any report issued on reportable conditions identified during an
audit?

A. A description of the reportable conditions and their potential impact on the financial
statements.
B. A statement indicating that the financial statements are inappropriately prepared.
C. A recommendation for how management should stop their operations.
D. An absolute assurance of the effectiveness of internal control system.

8. The following are examples of deficiencies in internal control structure design, except:

A. Inadequate overall internal control structure design


B. Absence of appropriate segregation of duties
C. Absence of inappropriate reviews and approvals of transactions, accounting entries or
output systems
D. Inadequate procedures for appropriately assessing and applying accounting principles

9. If additional evidence indicates irregularities that may materially affect the financial statements,
it may be appropriate for the auditor to:

A. Always issue an unqualified opinion about the financial statements


B. Investigate the irregularities further and, if necessary, adjust the financial statements or
modify the audit opinion.
C. Ignore the irregularities and proceed with the audit, as it is unlikely to impact the overall
opinion.
D. Immediately issue a qualified opinion without further investigation.

10. When internal controls are considered effective, the following are correct, except:

A. Reduce control risk.


B. Increase detection risk.
C. Perform tests of controls.
D. Perform extensive substantive testing.

11. In an auditor’s consideration of internal control, the completion of a questionnaire is most


closely associated with which of the following?

A. A separation of duties
B. Understanding the system
C. Flowchart accuracy
D. Tests of controls

12. The primary objective of procedures performed to obtain an understanding of internal control is
to provide an auditor with

A. An evidential matter to use in reducing detection risk.


B. A basis from which to modify tests of controls.
C. Knowledge necessary to plan the audit.
D. Information necessary to prepare flowcharts

13. Tests of controls are performed to obtain audit evidence about the effectiveness of the

A. Operation of the internal controls at the time the tests are being applied
B. Operations of the internal controls in eliminating fraud and errors.
C. Design of the internal controls in eliminating fraud and errors.
D. Design of the accounting and internal controls systems.

14. In general, a material weakness in internal control may be defined as a condition in which
material errors or irregularities may occur and not be detected within a timely period by

A. An independent auditor during tests of controls.


B. Management when reviewing interim financial statements and reconciling account
balances.
C. Employees in the normal course of performing their assigned functions.
D. Outside consultants who issue a special-purpose report on internal control structure

15. As part of understanding internal controls, an auditor is not required to

A. Consider factors that affect the risk of material misstatement


B. Ascertain whether internal control policies and procedures have been placed in
operation
C. Identity the types of potential misstatements that may occur.
D. Obtain knowledge about the operating effectiveness of internal control.

Summary of Answers:

1. B
2. B
3. C
4. D
5. D
6. A
7. A
8. C
9. B
10. D
11. B
12. C
13. D
14. C
15. D

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