AUDIT EXAM- CHAPTER 7 QUESTIONS WITH VERIFIED CORRECT ANSWERS

In order for an external auditor to complete an audit of a public company, the entity's management must comply with all of the following except a. accept responsbility for the effectiveness of the entity's internal control financial reporting b. evaluate the effectiveness of the entity's internal control over financial reporting using suitable control criteria c. support its evaluation with sufficient evidence, including documentation d. present an oral assessment of the effectiveness of the e d. present an oral assessment of the effectiveness of the entity's internal control over financial reporting as of the end of the entity's most recent fiscal year an "integrated audit" as stated in section 404 of the sarbanes-oxley act means a. the auditor must consider the integrated thoughts and ideas of everyone on the audit staff b. the auditor must conduct 2 audits, one on the effectiveness of internal controls and one on the financial statements, in an integrated way c. the auditor must integrate the same objectives whether auditing internal controls or auditing financial statements d. two independent CPA firms must work together on the audit b. the auditor must conduct 2 audits, one on the effectiveness of internal controls and one on the financial statements, in an integrated way Section 404 of the Sarbanes-Oxley Act requires the auditor to provide which of the following a. reasonable assurance on the financial statements, absolute assurance on internal control b. reasonable assurance on internal control, absolute assurance on the financial statements c. absolute assurance on both the financial statements and internal control d. reasonable assurance on both the financial statements and internal control d. reasonable assurance on both the financial statements and internal control According to the PCAOB, who is responsible for the reliability of the internal controls over financial reporting process of an entity? a. the entity's CEO and/or CFO b. the entity's board of directors c. an internal control specialist d. the external auditor a. the entity's CEO and/or CFO The person in charge of authorizing credit to customers does not properly understand what constitutes a credit risk. This is an example of A. A management deficiency. B. A design deficiency. C. A deficiency in operation. D. This is not an internal control deficiency. c. a deficiency in operation A deficiency that implies that there is a reasonable possibility of misstatement in the financial statements that is significant but not material is a. a material weakness b. a significant deficiency c. a insignificant deficiency d. a probable deficiency a. a significant deficiency which of the following is not a topic that requires special consideration by management during management's internal control assessment process and by the auditor during the audit of internal control? a. multiple locations and business units b. service organizations c. the role of the auditor in internal control d. safeguarding assets c. the role of the auditor in internal control Management documentation should include all of the following except: a. documentation regarding the auditor's evaluation of internal controls b. documentation regarding management's testing and evaluation of the controls c. documentation regarding the safeguarding of assets d. documentation on the controls designed in all five components of internal control a. documentation regarding the auditor's evaluation of internal controls which of the following is not a primary objective o internal control as established by COSO? a. efficiency and effectiveness of operations b. effective purchasing systems c. compliance with laws and regulations d. reliable financial reporting b. effective purchasing systems The main goal of auditing internal control is a. to allow the auditor to fix any internal control deficiencies b. to form an opinion on the ability of internal controls to prevent fraud c. to assure management that internal control is preventing all material misstatements on the financial statements d. to evaluate the effectiveness of controls over all relevant financial statement disclosures in the financial statements d. to evaluate the effectiveness of controls over all relevant financial statement disclosures in the financial statements An auditor performing an audit of internal control over financial reporting would be required to a. rely on the work of internal auditors b. test all of the entity's internal controls c. form an opinion on the effectiveness of internal control d. randomly identify accounts for an audit of internal control c. form an opinion on the effectiveness of internal control In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except: a. test some of the work performed by other to evaluate the quality and effectiveness of their work b. evaluate the nature of the controls subjected to the work of others c. evaluate the competence and objectivity of the individuals who performed the work d. all of these are required d. all of these are required which of the following is least likely to represent a material weakness in internal control for Flynt Corporation? a. Flynt Corporation's computer systems were not working properly for two days; consequently, employees needed to do all reconciliations manually b. Flynt Corporation's CFO was arrested last year for embezzling money from the entity c. For the current year, the auditor found a material misstatement in Flynt's sales recognition that was undetected by the internal controls d. Flynt's a. Flynt Corporation's computer systems were not working properly for two days; consequently, employees needed to do all reconciliations manually