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Auditing Chapter 3 Homework

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Auditing Chapter 3 Homework
Kayla Harbaugh
Quiz by Kayla Harbaugh, updated more than 1 year ago
Kayla Harbaugh
Created by Kayla Harbaugh over 4 years ago
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Question 1

Question
What is the primary benefit of effective internal control in an organization?
Answer
  • Completing a successful audit for the entity.
  • Achieving certain organizational goals.
  • Obtaining profitability and financial strength.
  • Maximizing value for shareholders.

Question 2

Question
Internal control is a process designed to achieve objectives in which one of the following categories?
Answer
  • Reliability of financial reporting
  • Compliance with applicable laws
  • Operational effectiveness
  • All of the above

Question 3

Question
Which of the following is considered to be an entity-wide control?
Answer
  • Segregation of duties
  • Controls over management override
  • Adequately documented transaction trails
  • Authorization procedures for purchasing

Question 4

Question
Which of the following is not included as a component of an organization's internal control structure in the COSO framework?
Answer
  • Control activities
  • The control environment
  • Control risk
  • Risk assessment

Question 5

Question
Which of the following is considered to be a transaction control?
Answer
  • Controls to monitor other controls
  • Physical controls to safeguard assets
  • Centralized processing controls
  • Policies that address significant business control practices

Question 6

Question
Which of the following is not part of the control environment of an organization?
Answer
  • Management’s philosophy and operating style.
  • Organizational structure.
  • Organization’s commitment to ethical values.
  • All of the above are part of the control environment.

Question 7

Question
With whom does the tone of internal control typically originate?
Answer
  • Auditors
  • Employees
  • Stockholders
  • Management

Question 8

Question
Which of the following COSO components is the foundation for all other components of internal control?
Answer
  • Information and communication
  • Control risk assessment
  • Control environment
  • Monitoring

Question 9

Question
Which of the following is an example of a control environment deficiency?
Answer
  • A low level of control consciousness within the organization
  • An audit committee that does not have independent members
  • An audit committee that is not viewed as the client of the external auditor
  • All of the above

Question 10

Question
Which of the following is an example of a control environment deficiency?
Answer
  • A low level of control consciousness within the organization.
  • An audit committee that does not have independent members.
  • An audit committee that is not viewed as the client of the external auditor.
  • All of the above.

Question 11

Question
Which of the following is not part of the control environment?
Answer
  • Methods of assigning authority and responsibility.
  • Management philosophy and operating style.
  • Control activities
  • Personnel policies and practices.

Question 12

Question
Which of the following best describes the purpose of personnel policies and procedures?
Answer
  • Ensure the organization has employees that are properly trained and supervised.
  • Ensure the organization complies with federal and state laws in its hiring and retention decisions.
  • Ensure the organization performs all of the above.
  • Ensure the organization hires the right people.

Question 13

Question
Which of the following is a major component of an organization's internal control structure?
Answer
  • Major new financing
  • Telecommunication equipment
  • Risk assessment
  • The financial environment

Question 14

Question
Internal controls may be preventive or detective. Which of the following controls is preventive?
Answer
  • Preparing bank reconciliations
  • Using batch totals
  • Requiring two persons to open mail containing payments
  • Reconciling the accounts receivable subsidiary file with the control account.

Question 15

Question
Which of the following is an inherent limitation of internal controls?
Answer
  • Lack of auditor independence
  • Employee peer review
  • Separation of duties
  • Collusion

Question 16

Question
Requiring the mail clerk to prepare a listing of all checks received, with copies of the list going to the cashier and to accounting, is an example of which type of control?
Answer
  • Detective
  • Corrective
  • Preventive
  • Directive

Question 17

Question
Which of the following is an example of a physical control to safeguard assets?
Answer
  • Safety audits on the production line
  • Hiring only trustworthy cashiers
  • Separation of duties
  • Locks on warehouse doors

Question 18

Question
A control designed to ensure that no employee is paid for more than 80 hours of sick pay is an example of which type of control?
Answer
  • Entity-wide control
  • Input control
  • Output control
  • Processing control

Question 19

Question
Which one of the following is not a control activity implemented in most accounting systems?
Answer
  • Segregation of duties
  • Authorization procedures
  • All of these activities are normally implemented
  • Competent, trustworthy employees

Question 20

Question
A control designed to ensure that sales transactions are generated using the company’s most current prices would be considered to be which type of control?
Answer
  • An output control
  • A physical control
  • A processing control
  • An input control

Question 21

Question
Requiring two signatures on any check in excess of $10,000 is an example of which type of control?
Answer
  • Processing control
  • Input control
  • Preventive control
  • Detective control

Question 22

Question
A bank reconciliation is an example of which type of control?
Answer
  • An input control
  • An output control
  • A detective control
  • A preventive control

Question 23

Question
Security management practices that limit access to technologies is a function included in which COSO component of internal control structure?
Answer
  • Monitoring
  • Risk assessment
  • Control activities
  • Control environment

Question 24

Question
Which COSO component of internal control concerns the process of identifying, capturing, and exchanging information in a timely fashion to enable accomplishment of the organization’s objectives?
Answer
  • Control environment
  • Monitoring
  • Information and communication
  • Control activities

Question 25

Question
Which of the following groups is interested in an organization's control structure?
Answer
  • Board members
  • Lenders
  • Auditors
  • All of the above

Question 26

Question
The information and communication component of internal control includes which of the following?
Answer
  • The organization deploys control activities through policies that establish what is expected and in procedures that put policies into action.
  • The organization obtains or generates and uses relevant, quality information to support the functioning of other components of internal control.
  • The organization identifies and assesses changes that could significantly impact the system of internal control.
  • All of the above

Question 27

Question
Which of the following activities would be an example of an ongoing evaluation?
Answer
  • Automated review of all payments and transactions
  • Monthly bank statement reconciliations
  • Periodic review of employee expense reimbursements
  • All of the above

Question 28

Question
Which of the following is not part of management’s report on internal controls?
Answer
  • The framework used to evaluate internal control.
  • A statement indicating the extent of tests performed to assess controls.
  • An assessment of the effectiveness of the company's internal control.
  • A statement that management is responsible for internal control.

Question 29

Question
Which of the following best represents a walkthrough?
Answer
  • The auditor walks the production line to find inefficiencies in the inventory process and reports them to management.
  • The controller takes a sample of recorded write-offs to ensure they have been properly approved.
  • The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries.
  • The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding.

Question 30

Question
Which of the following is the most severe?
Answer
  • Significant deficiencies in internal control.
  • Operational deficiencies in internal control.
  • Each is equally severe because it could result in inaccuracies in financial reporting.
  • Material weaknesses in internal control.

Question 31

Question
In a financial statement audit, what is the external auditor’s primary concern?
Answer
  • Determining whether the internal controls promote efficiency.
  • Detecting all errors.
  • Determining the effectiveness of operations.
  • Determining whether the internal controls are effective.
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