Audit Chapter 3, Acctg 5110 CPA High-Quality
Questions with Expert Answers WITH MULTIPLE
QUESTIONS AND THE CORRECT ANSWERS Top-Tier
Questions with Detailed Solutions
Internal control is a function of management, and effective control is based upon the
concept of charge and discharge of responsibility and duty. Which of the following is one of
the overriding principles of internal control?
A.) Responsibility for accounting and financial duties should be assigned to one
responsible officer.
B.) Responsibility for accounting activities and duties must be assigned only to employees
who are bonded.
C.) Responsibility for the accounting duties must be borne by the audit committee of the
company.
D.) Responsibility for the performance of each duty must be fixed. - CORRECT ANSWER- -D
Although substantive procedures may support the accuracy of underlying records, these
tests frequently provide no affirmative evidence of segregation of duties because
A.) Substantive procedures rarely guarantee the accuracy of the records if only a sample of
the transactions has been tested.
B.) The records may be accurate even though they are maintained by a person who
performs incompatible functions.
C.) Substantive procedures relate to the entire period under audit, but tests of controls
ordinarily are confined to the period during which the auditor is on the client's premises.
D.) Many computerized procedures leave no audit trail of who performed them, so
substantive procedures may necessarily be limited to inquiries and observation of office
personnel. - CORRECT ANSWER- -B
,Manual controls would most likely be more suitable than automated controls for which of
the following?
A.) Circumstances that require a high degree of accuracy.
B.) High-volume transactions that require additional calculations.
C.) Large, unusual, or nonrecurring transactions.
D.) Situations with routine errors that can be predicted and corrected. - CORRECT
ANSWER- -C
In obtaining an understanding of internal control, the auditor may trace several
transactions through the control process, including how the transactions interface with any
service organizations whose services are part of the information system. The primary
purpose of this task is to
A.) Replace substantive procedures.
B.) Determine whether the controls have been implemented.
C.) Detect fraud.
D.) Determine the effectiveness of the control procedures. - CORRECT ANSWER- -B
In an audit of financial statements, an auditor's primary consideration regarding an internal
control is whether the control
A.) Relates to operational objectives.
B.) Affects management's financial statement assertions.
C.) Reflects management's philosophy and operating style.
D.) Provides adequate safeguards over access to assets. - CORRECT ANSWER- -B
Which of the following is the most logical order of performing steps I through III below?
, I. Tests of controls
II. Understanding of internal control
III. Substantive procedures
A.) II, III, I.
B.) I, II, III.
C.) II, I, III.
D.) I, III, II. - CORRECT ANSWER- -C
Which of the following is a management control method that most likely could improve
management's ability to supervise company activities effectively?
A.) Monitoring compliance with internal control requirements imposed by regulatory
bodies.
B.) Supporting employees with the resources necessary to discharge their responsibilities.
C.) Limiting direct access to assets by physical segregation and protective devices.
D.) Establishing budgets and forecasts to identify variances from expectations. - CORRECT
ANSWER- -D
Internal control can provide only reasonable assurance of achieving an entity's control
objectives. The likelihood of achieving those objectives is affected by which limitation
inherent to internal control?
A.) The cost of internal control should not exceed its benefits.
B.) The board of directors is active and independent.
C.) Management monitors internal control.
Questions with Expert Answers WITH MULTIPLE
QUESTIONS AND THE CORRECT ANSWERS Top-Tier
Questions with Detailed Solutions
Internal control is a function of management, and effective control is based upon the
concept of charge and discharge of responsibility and duty. Which of the following is one of
the overriding principles of internal control?
A.) Responsibility for accounting and financial duties should be assigned to one
responsible officer.
B.) Responsibility for accounting activities and duties must be assigned only to employees
who are bonded.
C.) Responsibility for the accounting duties must be borne by the audit committee of the
company.
D.) Responsibility for the performance of each duty must be fixed. - CORRECT ANSWER- -D
Although substantive procedures may support the accuracy of underlying records, these
tests frequently provide no affirmative evidence of segregation of duties because
A.) Substantive procedures rarely guarantee the accuracy of the records if only a sample of
the transactions has been tested.
B.) The records may be accurate even though they are maintained by a person who
performs incompatible functions.
C.) Substantive procedures relate to the entire period under audit, but tests of controls
ordinarily are confined to the period during which the auditor is on the client's premises.
D.) Many computerized procedures leave no audit trail of who performed them, so
substantive procedures may necessarily be limited to inquiries and observation of office
personnel. - CORRECT ANSWER- -B
,Manual controls would most likely be more suitable than automated controls for which of
the following?
A.) Circumstances that require a high degree of accuracy.
B.) High-volume transactions that require additional calculations.
C.) Large, unusual, or nonrecurring transactions.
D.) Situations with routine errors that can be predicted and corrected. - CORRECT
ANSWER- -C
In obtaining an understanding of internal control, the auditor may trace several
transactions through the control process, including how the transactions interface with any
service organizations whose services are part of the information system. The primary
purpose of this task is to
A.) Replace substantive procedures.
B.) Determine whether the controls have been implemented.
C.) Detect fraud.
D.) Determine the effectiveness of the control procedures. - CORRECT ANSWER- -B
In an audit of financial statements, an auditor's primary consideration regarding an internal
control is whether the control
A.) Relates to operational objectives.
B.) Affects management's financial statement assertions.
C.) Reflects management's philosophy and operating style.
D.) Provides adequate safeguards over access to assets. - CORRECT ANSWER- -B
Which of the following is the most logical order of performing steps I through III below?
, I. Tests of controls
II. Understanding of internal control
III. Substantive procedures
A.) II, III, I.
B.) I, II, III.
C.) II, I, III.
D.) I, III, II. - CORRECT ANSWER- -C
Which of the following is a management control method that most likely could improve
management's ability to supervise company activities effectively?
A.) Monitoring compliance with internal control requirements imposed by regulatory
bodies.
B.) Supporting employees with the resources necessary to discharge their responsibilities.
C.) Limiting direct access to assets by physical segregation and protective devices.
D.) Establishing budgets and forecasts to identify variances from expectations. - CORRECT
ANSWER- -D
Internal control can provide only reasonable assurance of achieving an entity's control
objectives. The likelihood of achieving those objectives is affected by which limitation
inherent to internal control?
A.) The cost of internal control should not exceed its benefits.
B.) The board of directors is active and independent.
C.) Management monitors internal control.
