Kayla Harbaugh
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Auditing chapter 3 Pre Quiz

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Kayla Harbaugh
Created by Kayla Harbaugh almost 4 years ago
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Auditing chapter 3 Pre Quiz

Question 1 of 10

1

What are the components of internal control per COSO's Internal Control–Integrated Framework?

Select one of the following:

  • Organizational structure, management philosophy, planning, risk assessment, and control activities.

  • Risk assessment, control structure, backup facilities, responsibility accounting, and natural laws.

  • Legal environment of the firm, management philosophy, organizational structure, control activities, and control assessment.

  • Control environment, risk assessment, control activities, information and communication, and monitoring.

Explanation

Question 2 of 10

1

Which one of the following components of internal control over financial reporting sets the tone for the organization?

Select one of the following:

  • Information and communication

  • Control environment

  • Monitoring

  • Risk assessment

Explanation

Question 3 of 10

1

Which of the following statements is false regarding the risk assessment component of internal control?

Select one of the following:

  • Risk assessment includes assessing fraud risk

  • Risk assessment includes the identification and analysis of significant changes

  • Economic changes would not be considered a risk that needs to be analyzed as part of the risk assessment process.

  • Risk assessment includes assessing internal and external sources of risk

Explanation

Question 4 of 10

1

Which of the following is not part of management's fraud risk assessment process?

Select one of the following:

  • The assessment considers ways the fraud could occur

  • The assessment considers pressures that might lead to fraud in the financial statements

  • The assessment considers the role of the external auditor in preventing fraud

  • Fraud risk assessments serve as an important basis for determining the control activities needed to mitigate fraud risks

Explanation

Question 5 of 10

1

Assume that an organization sells software. The sales contracts with the customers often have nonstandard terms that impact the timing of revenue recognition. Thus, there is a risk that revenue may be recorded inappropriately. To mitigate that risk, the organization has implemented a policy that requires all nonstandard contracts greater than $1 million to be reviewed on a timely basis by an experienced and competent revenue accountant for appropriate accounting, prior to the recording of revenue. Management tested this control and found several instances in which the control was not working. Management has classified this deficiency as a material weakness. Which of the following best describes the conclusion made by management?

Select one of the following:

  • There is a reasonable possibility that a misstatement could occur

  • There is more than a remote possibility that a misstatement could occur

  • There is more than a remote possibility that a material misstatement could occur

  • There is a reasonable possibility that a MATERIAL misstatement could occur

  • The likelihood of misstatement is reasonably possible

Explanation

Question 6 of 10

1

The purpose of internal control is to provide absolute assurance that an organization will achieve its objective of reliable financial reporting.

Select one of the following:

  • True
  • False

Explanation

Question 7 of 10

1

Only organizations in high-risk industries face a risk that they will not achieve their objective of reliable financial reporting.

Select one of the following:

  • True
  • False

Explanation

Question 8 of 10

1

An organization's accounting system is part of its information and communication component of internal control.

Select one of the following:

  • True
  • False

Explanation

Question 9 of 10

1

As part of monitoring, an organization will select either ongoing evaluations or separate evaluations, but not both.

Select one of the following:

  • True
  • False

Explanation

Question 10 of 10

1

The auditor needs to understand a client's internal controls in order to anticipate the types of material misstatements that may occur in the financial statements and then develop sufficient audit procedures to determine whether those misstatements exist in the financial statements.

Select one of the following:

  • True
  • False

Explanation

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