Auditing chapter 3 Pre Quiz

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

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

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

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

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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?

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

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

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

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

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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.