CHAPTER 3 - AUDIT THEORY AND PRACTICE EXAM QUESTIONS AND ANSWERS 2025
3. Which of the following is not a reason that the auditor must gain an understanding of the client's
internal control system?
a.
Better understand the client, its risks, and how it manages those risks.
b.
Assess control risk and identify the types of financial statement misstatements that are most likely to
occur.
c.
Plan direct tests of account balances to determine if misstatements have occurred.
d.
All are reasons why auditors must gain an understanding of the client's internal control system.
YES. - (ANSWER)All are reasons why auditors must gain an understanding of the client's internal control
system.
7. What is the primary benefit of effective internal control in an organization?
a.
Achievement of certain organizational goals.
b.
Completion of a successful audit for the entity.
c.
Shareholder involvement in the company's success.
d.
Obtaining profitability and financial strength.
YES. - (ANSWER)Achievement of certain organizational goals.
8. Which one of the following components of the system of internal controls influences the tone for the
organization?
, CHAPTER 3 - AUDIT THEORY AND PRACTICE EXAM QUESTIONS AND ANSWERS 2025
a.
Control risk assessment.
b.
Control environment.
c.
Information and communication.
d.
Monitoring.
YES. - (ANSWER)Control environment.
9. Which of the following is not part of the control environment?
a.
Management philosophy and operating style.
b.
Methods of assigning authority and responsibility.
c.
Personnel policies and practices.
d.
Control activities.
YES. - (ANSWER)Control activities.
10. Which of the following is not one of the underlying principles of an effective control environment as
developed by COSO?
a.
The organization demonstrates a commitment to integrity and ethical values.
b.
3. Which of the following is not a reason that the auditor must gain an understanding of the client's
internal control system?
a.
Better understand the client, its risks, and how it manages those risks.
b.
Assess control risk and identify the types of financial statement misstatements that are most likely to
occur.
c.
Plan direct tests of account balances to determine if misstatements have occurred.
d.
All are reasons why auditors must gain an understanding of the client's internal control system.
YES. - (ANSWER)All are reasons why auditors must gain an understanding of the client's internal control
system.
7. What is the primary benefit of effective internal control in an organization?
a.
Achievement of certain organizational goals.
b.
Completion of a successful audit for the entity.
c.
Shareholder involvement in the company's success.
d.
Obtaining profitability and financial strength.
YES. - (ANSWER)Achievement of certain organizational goals.
8. Which one of the following components of the system of internal controls influences the tone for the
organization?
, CHAPTER 3 - AUDIT THEORY AND PRACTICE EXAM QUESTIONS AND ANSWERS 2025
a.
Control risk assessment.
b.
Control environment.
c.
Information and communication.
d.
Monitoring.
YES. - (ANSWER)Control environment.
9. Which of the following is not part of the control environment?
a.
Management philosophy and operating style.
b.
Methods of assigning authority and responsibility.
c.
Personnel policies and practices.
d.
Control activities.
YES. - (ANSWER)Control activities.
10. Which of the following is not one of the underlying principles of an effective control environment as
developed by COSO?
a.
The organization demonstrates a commitment to integrity and ethical values.
b.
