ASSURANCE MIDTERM EXAM UPDATED ACTUAL QUESTIONS AND CORRECT ANSWERS

ASSURANCE MIDTERM EXAM UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS

Question:
1. What is the primary purpose of internal control?
Answer:
To provide reasonable assurance regarding the achievement of objectives related to reliability of financial
reporting, effectiveness and efficiency of operations, and compliance with laws and regulations.

Question:
2. What are the limitations of internal control?
Answer:
Internal control provides reasonable, not absolute assurance, and can be limited by human error, deliberate
circumvention, and collusion.

Question:
3. What does WCGW stand for in auditing?
Answer:
What Could Go Wrong, referring to potential misstatements in financial reporting.

Question:
4. What is the purpose of a walkthrough in auditing?
Answer:
To follow a transaction from origination to recording in financial records, identifying points where
misstatements could arise.

Question:
5. What is the formula for Audit Risk (AR)?
Answer:
AR = Inherent Risk (IR) × Control Risk (CR) × Detection Risk (DR).

Question:
6. What is the difference between preventive and detective controls?
Answer:
Preventive controls aim to stop misstatements before they occur, while detective controls identify
misstatements after they have been recorded.

Question:
7. What is an integrated audit?
Answer:
An audit where the auditor provides opinions on both the compliance of financial statements with GAAP
and the effectiveness of Internal Controls over Financial Reporting (ICFR).

Question:
8. What is the significance of testing design effectiveness of controls?

, Answer:
To ensure that controls are appropriately designed to prevent or detect misstatements in financial reporting.

Question:
9. What should be documented during the control risk assessment?
Answer:
An understanding of internal controls through walkthroughs and preliminary assessments of control risk.

Question:
10. What are the three objectives of internal control?
Answer:
Reliability of financial reporting, effectiveness and efficiency of operations, and compliance with
applicable laws and regulations.

Question:
11. What is the role of management review controls (MRC)?
Answer:
To provide oversight and ensure that internal controls are functioning effectively.

Question:
12. What are the key components of the COSO framework?
Answer:
Control Environment, Risk Assessment, Control Activities, Information and Communication, and
Monitoring Activities.




Question:
13. What is the purpose of substantive testing in an audit?
Answer:
To gather evidence that supports the assertions made in the financial statements.

Question:
14. What is the role of the auditor in assessing control risk?