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During audits of internal controls over financial reporting of various issuers, the auditors
encountered the independent situations below. For each situation, click in the
associated cell and select from the option list provided the appropriate audit response. A
response may be selected once, more than once, or not at all.

A B

1 Situation Response

The client did not furnish adequate evidence for the auditor
2 to evaluate the internal controls over inventory. All other
evidence was provided.

The auditors examined the client's internal controls over

cash receipts and concluded that they are operating exactly
3 as designed. However, the design of the controls does not
include control procedures to prevent misstatements and the
potential omission of cash receipts.

The auditors concluded that the ineffectiveness of the design

of controls over accounts payable and cash disbursements
4 represents a material weakness in internal control even
though the financial statements are not materially misstated.

Management has not provided assurance that there are no

5 material weaknesses in controls. Subsequent tests revealed
no material weaknesses.

The auditor's prior-year report on internal control included

an adverse opinion. The client has since modified internal
6 controls. No material weaknesses were found in the current
year.

Row 2: Issue a Disclaimer of Opinion

Failure to furnish the auditor with adequate evidence is a scope limitation. When there is a scope
limitation in an audit of internal controls, the auditor can issue a disclaimer of opinion or withdraw
from the engagement.

Row 3: Determine if the control deficiency is a material weakness by obtaining further audit
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evidence
Control deficiencies can result from deficiencies in the design of an entity's controls and/or failures
in the operation of an entity's controls. In this situation, the controls are operating as designed, so
there is no failure in the operation of the controls. However, a control deficiency exists because
there is a deficiency in the design of the controls. The auditor must determine if the control
deficiency is a material weakness by obtaining further audit evidence.

Row 4: Express an adverse opinion on the internal controls

In an audit of an entity's internal control, a material weakness in internal control results in an
adverse opinion.

Row 5: Express an unqualified opinion on the internal controls

In an internal control audit, management is required to provide an assertion about the effectiveness
of the entity's internal controls. However, management does not provide assurance about the
internal controls. An unqualified opinion is issued if the auditor does not find any material
weaknesses in the entity's internal controls.

Row 6: Express an unqualified opinion on the internal controls

Although last year's auditor's report included an adverse opinion on the client's internal controls, the
client has since modified their internal controls, and the auditor has tested the effectiveness of
these internal controls in the current year's audit. Because the audit tests found no material
weaknesses in the client's internal controls, the auditor will express an unqualified opinion on the
internal controls in this year's auditor's report.
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The below control transactions relate to the integrated audit of an issuer. Determine if
each control is an entity-level control. If the control is not an entity-level control,
determine which cycle the control most likely relates to.

For each of the control procedures reflected in the table below, click in the associated
cell and select from the list the most appropriate category. Options may be selected
more than once, once, or not at all.

A B

1 Control Procedure Control

Management's philosophy and operating style promote

2 effective internal control over financial reporting.

Timecards are approved by an employee's immediate

3 supervisor.

All computers have identification plates that are listed in

4 a control account.

The purchasing department obtains competitive bids from

5 various suppliers to make sure that the best price is
obtained for supplies.

The audit committee reviews the annual and quarterly

6 financial statements before filing with the SEC.

The shipping department utilizes serially numbered bill of

7 lading.
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A B
Management signs off that they have read and understood the
8 company's Code of Ethics.

Shipping documents and sales orders are matched before

9 preparing a customer's invoice.

Row 2: Entity-Level Control

Entity-level controls include controls related to the control environment, such as management's
philosophy and operating style.

Row 3: Payroll and Personnel Cycle

Reviewing timecards for proper approval relates to the payroll and personnel cycle.

Row 4: Property, Plant, and Equipment Cycle

Serially numbered identification plates on computers is a control related to the property, plant, and
equipment cycle.

Row 5: Expenditure Cycle

Controls related to purchasing supplies is most likely part of the expenditure cycle.
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Row 6: Entity-Level Control

Entity-level controls include controls related to the control environment and period-end financial
reporting process, such as the audit committee exercising oversight over financial reporting.

Row 7: Revenue Cycle

Controls related to shipping most likely relate to the revenue cycle.

Row 8: Entity-level control

Entity-level controls include controls related to the control environment, such as evidence related to
management's commitment to ethics.

Row 9: Revenue Cycle

Shipping and sales orders most likely relate to the revenue cycle.
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The following draft report was prepared by a staff associate and relates to the questions located in
the Internal Control Report tab:

Draft Report:

Question 1

Report on Internal Control Over Financial Reporting

We have Question 2 Sling Co.'s internal control over financial reporting as of December 31, Year 1,
based on criteria established in the Internal Control—Integrated Framework (2013) issued
byQuestion 3.

Question 4
Management is responsible for designing, implementing, and maintaining effective internal control
over financial reporting, and for its assessment about the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on Internal Control Over
Financial Reporting.

Question 5
Our responsibility is to express an opinion on the entity's internal control over financial reporting
based on our audit. We conducted our Question 6 in accordance with Question 7 in the United
States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
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An audit of internal control over financial reporting involves performing procedures to obtain audit
evidence about whether a material weakness exists. The procedures selected depend on the
auditor's judgment, including the assessment of the risks that a material weakness exists. An audit
includes obtaining an understanding of internal control over financial reporting and testing and
evaluating the design and operating effectiveness of internal control over financial reporting based
on the assessed risk.

We believe that the audit evidence we have obtained is Question 8 to provide a basis for our audit
opinion.

Definition and Inherent Limitations of Internal Control Over Financial Reporting

An entity's internal control over financial reporting is a process effected by those charged with
governance, management, and other personnel, designed to provide reasonable assurance
regarding the preparation of reliable financial statements in accordance with accounting principles
generally accepted in the United States of America.

An entity's internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the entity; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with Question 9 in the United States of America, and that receipts and expenditures of the entity
are being made only in accordance with authorizations of management and those charged with
governance; and (3) provide reasonable assurance regarding prevention, or timely detection and
correction of unauthorized acquisition, use, or disposition of the entity's assets that could have a
material effect on the financial statements.

Because of its Question 10, internal control over financial reporting may not prevent, or detect and
correct, misstatements. Also, projections of any assessment of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

Opinion
In our opinion, Sling Co. maintained, in all material respects, effective internal control over financial
reporting as of December 31, Year 1, based on Internal Control—Integrated Framework (2013)
issued by Question 11.

Report on Financial Statements

We also have audited, in accordance with auditing standards generally accepted in the United
States of America, the financial statements of Sling Co., and our report dated February 15, Year 2,
expressed an unmodified opinion.

Peckman, CPAs
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Costa Mesa, California

February 15, Year 2

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Sling Co., a nonissuer, hired Peckman, CPAs, to express an opinion directly on the
company's internal controls over financial reporting as of December 31, Year 1.
Peckman also performed an audit of Sling's financial statements.

A staff associate prepared the draft report in the exhibit and has questions about the
correct wording of the report based on the relevant professional standards.

For each of the questions below, click in the associated cell and select from the list
provided the appropriate word or phrase to complete the indicated sentence in the
report.

A B

1 Question Phrase or Word

2 1

3 2

4 3

5 4

6 5

7 6

8 7

9 8

10 9

11 10
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A B

12 11

This question is testing the candidate's knowledge of the nonissuer report on internal control over
financial
statements.
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Chemical Cleanup Corp. (CCC) engaged Charles, CPA, to audit its financial statements for the
year ended July 31, Year 1 in accordance with Government Auditing Standards. CCC is a
not-for-profit organization that receives grants and fees from various state and municipal
governments, as well as grants from several federal government agencies. The auditors' reports
are to be submitted by CCC to the granting government agencies, which make the reports available
for public inspection.

Charles asked a staff accountant to draft a combined report on compliance and internal control over
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compliance reporting. This combined report, which contained the statements included in the table
below, was submitted to the engagement partner for review. The partner reviewed matters
thoroughly and properly concluded no material instances of noncompliance were identified and an
unmodified opinion would be rendered.

For each of the statements listed below, identify whether it is appropriate or inappropriate by
clicking in the associated cell and selecting the appropriate response.

A B
A statement that the audit was conducted in accordance with generally
1 accepted auditing standards and with Government Auditing Standards
issued by the Comptroller General of the United States.

A statement that the compliance audit included examining on a test

2 basis, evidence about the entity's compliance.

A statement that the compliance audit provides a legal determination

3 of the entity's compliance.

A statement that the management is responsible for maintaining

4 effective internal controls over compliance with laws, regulations,
contracts and grants.

A statement that the auditor's consideration of the entity's

5 internal control over compliance was designed to identify all the
deficiencies in internal control that might be significant.

A statement that this report is intended solely for the information

6 and use of management, and others within the entity, and should not
be used by anyone other than specified parties.

A statement defining deficiency in internal control over compliance

7 and material weakness in internal control over compliance.

A statement that the auditor expresses an opinion on internal control

8 over compliance.

Row 1: Appropriate
The report should include a statement that the audit was conducted in accordance with generally
accepted auditing standards and with Government Auditing Standards issued by the Comptroller
General of the United States.

Row 2: Appropriate
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The report should include a statement that the compliance audit included examining on a test basis,
evidence about the entity’s compliance.

Row 3: Not appropriate

The report should include a statement that the compliance audit does not provide a legal
determination of the entity’s compliance.

Row 4: Appropriate
The report should include a statement that the management is responsible for maintaining effective
internal controls over compliance with laws, regulations, contracts, and grants.

Row 5: Not appropriate

The report should include a statement that the auditor’s consideration of the entity’s internal control
over compliance was not designed to identify all the deficiencies in internal control that might be
significant.

Row 6: Appropriate
The report should include a statement that this report is intended solely for the information and use
of management, and others within the entity, and should not be used by anyone other than
specified parties.

Row 7: Appropriate
The report should include a statement defining deficiency in internal control over
compliance andmaterial weakness in internal control over compliance.

Row 8: Not appropriate

The report should include a statement that the auditor does not express an opinion on internal
control over compliance.

5
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Source of answer for this question:

AT-C 205.50

Keyword: Written representations

Note: This question specifically relates to attestation engagements. You can tell it relates to an
attestation engagement because the question is asking about an "examination." You may search
just the Attestation standards by:

• Typing in your search criteria of "written representations".

• Clicking on the Attestations Standards [AT-C] folder (located on the left hand side of the
screen).
• Clicking on "search within" button.
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AT-C 395.86

Keywords: Report Date MD&A

For best results:

 Click on "advanced search"
 In "containing all these words" type Report Date MD&A
 Click on "search"
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Source of answer for this question:

PCAOB AS 2201.87

Keywords: Combined report

Note: Since this situation relates to an issuer, you may select PCAOB Auditing Standards from the
“Select Sources” option. In addition, for further reduction of results, click on advanced search and
type the key words above in the “all of these words” search field.