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Internal Controls Multiple Choice

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1. What is the auditor's responsibility for testing internal controls when the auditor believes that the internal controls are effective and intends to rely upon them?

The auditor is required to test the controls.
The auditor may test the controls.
The auditor does need not to test the controls.
The auditor never has any responsibility for testing internal controls.

2. Which one of the following is considered effective documentation of an internal control system?

Electronically pre-numbered records.
A cathode ray screen used in input.
Verbal authorization.
The financial statements.

3. Mark Pulley is an auditor at Pulley and Hurst, LLC. If Pulley's five-year-old daughter owns shares of stock in McBurgers Corporation, then what is Pulley considered to have?

An immaterial indirect financial interest in McBurgers Corporation.
A material indirect financial interest in the McBurgers Corporation.
A loophole for claiming independence from McBurgers Corporation.
An direct financial interest in McBurgers Corporation.

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Solution Preview

1. The auditor does need not to test the controls. Tests of controls aren't required based on the risk assessment standards of 2006 or for additional standards ending after December 15, 2012. An auditor can determine if adequate controls are in place based on other risk assessment procedures, analytical procedures and tests of the balances on the financial statements (The information was obtained at ...

Solution Summary

Internal controls for auditors responsibility are provided. The effective documentation of an internal control systems are considered.

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20 Auditing Multiple Choice Questions

I have a multiple choice practice test/study guide for my auditing class below. Please help with the answers for this study guide.

1. The definition of auditing states that the auditor
A. objectively obtains evidence
B. is independent
C. must evaluate internal control
D. none of the above

2. Financial statements are the representations of
A. the auditor
B. the board of directors
C. the AICPA
D. management

3. Proper supervision is
A. a general standard
B. a standard of fieldwork
C. a standard of reporting
D. both A & C

4. The audit report should be dated
A. the same date the engagement letter is dated
B. the date the report is prepared
C. the date the fieldwork is completed
D. none of the above

5. If an auditor is not independent, he should issue a
A. disclaimer
B. unqualified report with explanatory paragraph
C. qualified report
D. representation letter

6. The concept of materiality is recognized in the auditor's report
A. in the introductory paragraph
B. in an explanatory paragraph
C. in the scope paragraph
D. materiality is not recognized in the auditor's report

7. The auditor considers materiality from
A. an AICPA perspective
B. a state board perspective
C. independence perspective
D. reasonable user perspective

8. The risk that the auditor will not detect a material misstatement is
A. control risk
B. inherent risk
C. expected misstatement
D. none of the above

9. Evidence is considered competent when it
A. is relevant to the audit objective being tested
B. contains no material misstatement
C. signals the true state of an assertion
D. both A & C

10. Audit documentation is the property of
A. the client
B. the auditor
C. both the client and the auditor
D. the audit committee

11. The objective of the audit plan is
A. to conduct the audit in accordance with GAAS
B. reduce the risk of material misstatements to an acceptably low level
C. prepare an unqualified report
D. Both A & B

12. Substantive tests consist of
A. analytical procedures
B. tests of the design of the internal control system
C. tests of the implementation of the internal control system
D. all of the above

13. A more detailed understanding of internal control is required when using a
A. substantive strategy
B. reliance strategy
C. sampling strategy
D. test-basis strategy

14. The concept of _________ recognizes that the cost of an entity's internal control system should not exceed the benefits that are expected to be derived
A. materiality
B. substantive testing
C. reasonable assurance
D. control risk

15. Which is not true concerning information technology?
A. audit objectives change when using information technology
B. duties may be difficult to segregate
C. internal control usually becomes more reliable as the complexity of the system increases
D. hard copies of source documents may not exist

16. Personal computers may be used for
A. trial balance preparation
B. audit documentation
C. analytical procedures
D. all of the above

17. The correct sequence of steps in planning an attribute sampling application is
A. randomly select sample items, perform audit procedures, perform error analysis
B. determine the tolerable deviation rate, consider the effect of population size, randomly select the sample items
C. determine the test objective, define the control deviation conditions, define the population
D. define the sampling unit, define the period covered by the test, randomly select the sample items

18. Which of the following represents a deviation
A. unused or inapplicable documents
B. inability to examine a sample item
C. voided documents
D. Both A & B

19. The amount of the preliminary judgment about materiality that is allocated to a financial statement account is referred to as
A. sampling risk
B. risk of incorrect rejection
C. upper limit on misstatement
D. tolerable misstatement

20. Sampling may be used for substantive testing to
A. develop an estimate of some amount
B. consider the variation within the population
C. apply judgment
D. determine an acceptable level of risk

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