Auditing Test 1 UNF Bell UPDATED
ACTUAL Exam Questions and CORRECT
Answers
what is not an inherent limitation of the potential effectiveness of internal control? - CORRECT
ANSWER - Incompatible Duties. They can be affected by management.
What is the concept of Reasonable Assurance? - CORRECT ANSWER - The cost of
internal control should not exceed the benefits expected to be derived.
What three business functions should be separated in order to properly segregate duties? -
CORRECT ANSWER - Authorization, Recording, and Custody
What is something that an entity can do to monitor it's controls? - CORRECT ANSWER -
Review of functions.
Where is the attitude and awareness of the entity's board of directors shown? - CORRECT
ANSWER - The Control Environment
If management was dominated by one individual, would that operating style have significant
influence on the entity's control environment? - CORRECT ANSWER - Yes
What factors make up the control environment? - CORRECT ANSWER - Audit
Committee, Integrity and ethical values and Organizational Factors.
Is Control Risk part of an entity's internal control? - CORRECT ANSWER - No. Control
Risk is part of the audit risk equation. It is a result of the internal control done by the entity, but it
is not a part of the internal control.
,Name an important provision of the Foreign Corrupt Practices Act. - CORRECT
ANSWER - Every publicly held company must devise, document, and maintain internal
control sufficient to provide reasonable assurances that internal control objectives are met.
If an auditor suspects that employees are ordering merchandise for themselves over the internet
and then destroying the invoices and related vouchers related to the payment and receipt of the
goods, how would they confirm this suspicion? - CORRECT ANSWER - Look at cash
disbursements. This is the only part that would remain in the audit trail after the employee
destroyed everything else.
What is the best way to see if an entity has designed internal controls well? - CORRECT
ANSWER - Observation - a walk through.
What is the most important controls to an audit? - CORRECT ANSWER - Controls over
the reliability of financial reporting. However, other controls may still be relevant.
Is an auditor required to determine whether controls are suitably designed? - CORRECT
ANSWER - Yes.
Why would an auditor need to obtain sufficient knowledge about an entity's information system?
- CORRECT ANSWER - To learn the processes used to prepare accounting estimates. The
Information system is focused on these estimates which are a large risk area.
Why should an auditor focus on the substance more than the form of the controls? - CORRECT
ANSWER - Because even the best controls are pointless if they are not being followed out.
What do decision tables emphasize? - CORRECT ANSWER - Logical relationships
among conditions and actions.
During the consideration of Internal control, is the auditor required to search for significant
deficiencies in the operation of the internal control? - CORRECT ANSWER - No.
, What is the primary reason auditors try to gain an understanding of internal control? -
CORRECT ANSWER - To gain knowledge necessary to assess risk of material
misstatement.
What is the required form of documentation? - CORRECT ANSWER - There is no
particular form required.
When obtaining an understanding of an entity's internal control, is an auditor required to look at
the operating effectiveness or the design of controls? - CORRECT ANSWER - Just the
design of controls
Do Auditors always need to test the controls of a small private company? - CORRECT
ANSWER - No. If everyone is trustworthy and the controls seem good, then a test is not
necessary.
What is control risk assessed in terms of? - CORRECT ANSWER - Financial Statement
Assertions.
What is needed to further reduce control risk? - CORRECT ANSWER - additional audit
evidence that supports a reduction.
What does a low level assessment of control risk look at? - CORRECT ANSWER -
Identifying specific controls relevant to specific assertions.
What does control risk affect? - CORRECT ANSWER - The level of detection risk the
auditor will accept. If controls are good, then the auditor can rely more on those than further tests
and they can reduce detection risk.
What is an auditor required to do if the level of control risk is high? - CORRECT
ANSWER - Test more details.
ACTUAL Exam Questions and CORRECT
Answers
what is not an inherent limitation of the potential effectiveness of internal control? - CORRECT
ANSWER - Incompatible Duties. They can be affected by management.
What is the concept of Reasonable Assurance? - CORRECT ANSWER - The cost of
internal control should not exceed the benefits expected to be derived.
What three business functions should be separated in order to properly segregate duties? -
CORRECT ANSWER - Authorization, Recording, and Custody
What is something that an entity can do to monitor it's controls? - CORRECT ANSWER -
Review of functions.
Where is the attitude and awareness of the entity's board of directors shown? - CORRECT
ANSWER - The Control Environment
If management was dominated by one individual, would that operating style have significant
influence on the entity's control environment? - CORRECT ANSWER - Yes
What factors make up the control environment? - CORRECT ANSWER - Audit
Committee, Integrity and ethical values and Organizational Factors.
Is Control Risk part of an entity's internal control? - CORRECT ANSWER - No. Control
Risk is part of the audit risk equation. It is a result of the internal control done by the entity, but it
is not a part of the internal control.
,Name an important provision of the Foreign Corrupt Practices Act. - CORRECT
ANSWER - Every publicly held company must devise, document, and maintain internal
control sufficient to provide reasonable assurances that internal control objectives are met.
If an auditor suspects that employees are ordering merchandise for themselves over the internet
and then destroying the invoices and related vouchers related to the payment and receipt of the
goods, how would they confirm this suspicion? - CORRECT ANSWER - Look at cash
disbursements. This is the only part that would remain in the audit trail after the employee
destroyed everything else.
What is the best way to see if an entity has designed internal controls well? - CORRECT
ANSWER - Observation - a walk through.
What is the most important controls to an audit? - CORRECT ANSWER - Controls over
the reliability of financial reporting. However, other controls may still be relevant.
Is an auditor required to determine whether controls are suitably designed? - CORRECT
ANSWER - Yes.
Why would an auditor need to obtain sufficient knowledge about an entity's information system?
- CORRECT ANSWER - To learn the processes used to prepare accounting estimates. The
Information system is focused on these estimates which are a large risk area.
Why should an auditor focus on the substance more than the form of the controls? - CORRECT
ANSWER - Because even the best controls are pointless if they are not being followed out.
What do decision tables emphasize? - CORRECT ANSWER - Logical relationships
among conditions and actions.
During the consideration of Internal control, is the auditor required to search for significant
deficiencies in the operation of the internal control? - CORRECT ANSWER - No.
, What is the primary reason auditors try to gain an understanding of internal control? -
CORRECT ANSWER - To gain knowledge necessary to assess risk of material
misstatement.
What is the required form of documentation? - CORRECT ANSWER - There is no
particular form required.
When obtaining an understanding of an entity's internal control, is an auditor required to look at
the operating effectiveness or the design of controls? - CORRECT ANSWER - Just the
design of controls
Do Auditors always need to test the controls of a small private company? - CORRECT
ANSWER - No. If everyone is trustworthy and the controls seem good, then a test is not
necessary.
What is control risk assessed in terms of? - CORRECT ANSWER - Financial Statement
Assertions.
What is needed to further reduce control risk? - CORRECT ANSWER - additional audit
evidence that supports a reduction.
What does a low level assessment of control risk look at? - CORRECT ANSWER -
Identifying specific controls relevant to specific assertions.
What does control risk affect? - CORRECT ANSWER - The level of detection risk the
auditor will accept. If controls are good, then the auditor can rely more on those than further tests
and they can reduce detection risk.
What is an auditor required to do if the level of control risk is high? - CORRECT
ANSWER - Test more details.
