1616810495244489

Question 1.
Which of the following would be least likely to be considered an objective of internal

control? Detecting management fraud.
1) An entity’s ongoing monitoring activities often include: Management review of weekly
performance reports.
2) A primary objective of procedures performed to obtain an understanding of internal control is to
provide the auditors with: Knowledge necessary to determine the nature, timing, and extent of
further audit procedures.
3) An auditor may compensate for a weakness in internal control by increasing the extent of:
Substantive tests of details.
4) Controls over financial reporting are often classified as preventative, detective, or corrective.
Which of the following is an example of a detective control? Preparing bank reconciliations.
5) When a CPA decides that the work performed by internal auditors may have an effect on the
nature, timing, and extent of the CPA’s procedures, the CPA should consider the competence
and objectivity of the internal auditors. Relative to objectivity, the CPA should: Consider the
organizational level to which the internal auditors report the results of their work.
6) Which of the following is not ordinarily a procedure for documenting an auditor's understanding
of internal control for planning purposes? Confirmation.
7) You are performing an audit of Systex Corporation and evaluating various controls. Classify the
following controls as being primarily preventive, detective, or corrective.
Answer:
a. Annual physical inventory. Detective
b. Monthly reconciliation of bank accounts. Detective
c. Segregation of duties over purchasing. Preventive
d. Supervisory approval of time cards. Preventive
e. Dual signatures for checks. Preventive
f. Adjustment of perpetual inventory records to physical counts. Corrective
g. Management review of budget/actual information. Detective
h. Internal audits of payroll. Detective
Question 2. Listed below are controls that have been developed by the management of Cirus
Manufacturing Co.
1. Management surveys customers about their satisfaction with the company’s
service.
2. The human resources department investigates the educational background of
prospective employees.
3. Invoices are reviewed for accuracy before they are mailed to customers.
4. Management periodically evaluates the threats to preparing reliable financial
statements.
5. The internal auditors periodically evaluate the controls in the various departments
of the company.
6. Management has developed and distributed a code of conduct.
7. Management compares actual performance with budgets and forecasts.
8. The accounting department uses a manual of accounting policies and procedures.
9. Entry into the warehouse is strictly controlled by security personnel.
10. Management has prepared and distributed an organizational chart.
For each of the controls, identify the internal control component and, if applicable, the subcomponent
or principle to which it relates. Control components may be selected more than once.
Answer:
Question 3.
1) Tests of controls do not address: How controls were originated
2) Which of the following is least likely to be a test of controls? Observation of confirmations.
3) Tests of controls ordinarily are designed to provide evidence of:Operating effectiveness.
4) The preliminary assessments of control risk are often referred to as:The planned assessed level
of control risk.
5) At the completion of the audit, the auditors are least likely to know: Actual control risk.
In all accounting systems, a variety of controls must be designed to accomplish the
organization's control objectives.
CONCEPT REVIEW:
6) Internal controls vary significantly between organizations--depending on attributes like
organization size, nature of operations, and objectives. In all systems, however, a variety of
controls needs to be designed to accomplish the organization's objectives. Controls are classified
as preventive, detective, or corrective.
16) In all accounting systems, a variety of controls must be designed to accomplish the organization's
control objectives.
CONCEPT REVIEW:
Internal controls vary significantly between organizations--depending on attributes like organization

size, nature of operations, and objectives. In all systems, however, a variety of controls needs to be
designed to accomplish the organization's objectives. Controls are classified as preventive, detective, or
corrective.
1.Segregation of duties is a preventive control created to avoid misstatement.
2.Approving journal entries helps prevent misstatement in financial statements.
3.Detective controls detect misstatements that have already been made.
4 Bank reconciliations are a type of detective control.
5.Corrective controls correct a misstatement that has been found.
17) The control environment, often referred to as "tone at the top", sets the tone of an organization by
influencing the control awareness of the people within the organization.
CONCEPT REVIEW:
The control environment can be viewed as the foundation for all the other facets of internal control.
18) The control environment, often referred to as "tone at the top", sets the tone of an organization by
influencing the control awareness of the people within the organization.
CONCEPT REVIEW:
The control environment can be viewed as the foundation for all the other facets of internal control.
1.A statement of values by senior management helps establish the control environment.
2.Employees must have appropriate skills to properly perform their duties.
3.A strong organizational structure helps to best control operations.
4.To be independent, the audit committee needs to not be comprised of employees.
5.Job descriptions help define objectives.
19) Service organizations need to have their controls reviewed by auditors. For example, service
organizations that provide data processing services to various clients need to have their controls
reviewed by auditors so that the client's auditors can satisfy themselves that control is being adequately
maintained relative to the processing of client data by an external source.
CONCEPT REVIEW:
Often service organizations have their auditors, called service auditors, study their systems of internal
control and issue a service auditor's report.
20) Service organizations need to have their controls reviewed by auditors. For example, service
organizations that provide data processing services to various clients need to have their controls
reviewed by auditors so that the client's auditors can satisfy themselves that control is being adequately
maintained relative to the processing of client data by an external source.
CONCEPT REVIEW:
Often service organizations have their auditors, called service auditors, study their systems of internal
control and issue a service auditor's report.
1.A Type 1 report by service auditors assesses controls and their suitability.
2.A Type 2 report by service auditors assesses controls and their suitability and effectiveness.
3.Service auditors audit the systems of service organizations.
4.Auditors of service organizations can provide Type 1 or Type 2 reports--two in total.
5.Type 2 reports address operating effectiveness, not just an assessment of controls.

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Question 1.

Which of the following would be least likely to be considered an objective of internal

Internal controls vary significantly between organizations--depending on attributes like organization

1.Segregation of duties is a preventive control created to avoid misstatement.

2.Approving journal entries helps prevent misstatement in financial statements.

3.Detective controls detect misstatements that have already been made.

4 Bank reconciliations are a type of detective control.

5.Corrective controls correct a misstatement that has been found.

2.Employees must have appropriate skills to properly perform their duties.

3.A strong organizational structure helps to best control operations.

4.To be independent, the audit committee needs to not be comprised of employees.

5.Job descriptions help define objectives.

3.Service auditors audit the systems of service organizations.

4.Auditors of service organizations can provide Type 1 or Type 2 reports--two in total.

5.Type 2 reports address operating effectiveness, not just an assessment of controls.

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