Audit Chapter 5 Questions and Correct
Verified Answers
1) An audit team's responsibility would not include
A) designing client's internal controls.
B) documentation of understanding of a client's internal controls.
C) communicating internal control deficiencies.
D) assessing the effectiveness of a client's internal controls. answer A) designing client's
internal controls.
The appropriate separation of duties does not include
A) authorization to execute transactions.
B) recording of transactions.
C) custody of assets involved in transactions.
D) data preparation. answer D) data preparation.
A set of characteristics that helps to define a seriousness about employees' attitudes about the
control activities in a company is referred to as
A) management assertions.
B) the control environment.
,C) control risk assessment.
D) functional responsibilities. answer B) the control environment.
When an auditor plans to rely on controls that have changed since they were last tested, which
of the following courses of action would be most appropriate?
A) Test the operating effectiveness of such controls in the current audit.
B) Document that reliance and proceed with the original audit strategy.
C) Inquire of management as to the effectiveness of the controls.
D) Report the reliance in the report on internal controls. answer A) Test the operating
effectiveness of such controls in the current audit.
An auditor is concerned about a policy of management override as a limitation of internal
control. Which of the following tests would best assess the validity of the auditor's concern?
A) Matching purchase orders to accounts payable.
B) Verifying that approved spending limits arenot exceeded.
C) Tracing sales orders to the revenue account.
D) Reviewing minutes of board meeting. answer B) Verifying that approved spending limits are
not exceeded.
Which of the following activities performed by a department supervisor most likely would help
in the prevention or detection of a payroll fraud?
A) Distributing paychecks directly to department store employees.
B) Setting the pay rate for departmental employees.
C) Hiring employees and authorizing them to be added to payroll.
, D) Approving a summary of hours each employee worked during the pay period. answer D)
Approving a summary of hours each employee worked during the pay period.
Which of the following outcomes is a likely benefit of information technology used for internal
control?
A) processing of unusual or nonrecurring transactions
B) enhanced timeliness of information
C) potential loss of data
D) recording of unauthorized transactions answer B) enhanced timeliness of information
Which of the following procedures is considered a test of controls?
A) An auditor reviews the entity's check register for unrecorded liabilities.
B) An auditor evaluates whether a general journal entry was recorded at the proper amount.
C) An auditor interviews and observes appropriate personnel to determine segregation of
duties.
D) An auditor reviews the audit workpapers to ensure proper sign-off. answer C) An auditor
interviews and observes appropriate personnel to determine segregation of duties.
Which of the following factors is most likely to affect the extent of the documentation of the
auditor's understanding of a client's system of internal controls?
A) the industry and the business and regulatory environments in which the client operates
B) the degree to which information technology is used in the accounting function
C) the relationship between management, the board of directors, and stakeholders
D) the degree to which the auditor intends to use internal audit to perform tests answer B) the
degree to which information technology is used in the accounting function
Verified Answers
1) An audit team's responsibility would not include
A) designing client's internal controls.
B) documentation of understanding of a client's internal controls.
C) communicating internal control deficiencies.
D) assessing the effectiveness of a client's internal controls. answer A) designing client's
internal controls.
The appropriate separation of duties does not include
A) authorization to execute transactions.
B) recording of transactions.
C) custody of assets involved in transactions.
D) data preparation. answer D) data preparation.
A set of characteristics that helps to define a seriousness about employees' attitudes about the
control activities in a company is referred to as
A) management assertions.
B) the control environment.
,C) control risk assessment.
D) functional responsibilities. answer B) the control environment.
When an auditor plans to rely on controls that have changed since they were last tested, which
of the following courses of action would be most appropriate?
A) Test the operating effectiveness of such controls in the current audit.
B) Document that reliance and proceed with the original audit strategy.
C) Inquire of management as to the effectiveness of the controls.
D) Report the reliance in the report on internal controls. answer A) Test the operating
effectiveness of such controls in the current audit.
An auditor is concerned about a policy of management override as a limitation of internal
control. Which of the following tests would best assess the validity of the auditor's concern?
A) Matching purchase orders to accounts payable.
B) Verifying that approved spending limits arenot exceeded.
C) Tracing sales orders to the revenue account.
D) Reviewing minutes of board meeting. answer B) Verifying that approved spending limits are
not exceeded.
Which of the following activities performed by a department supervisor most likely would help
in the prevention or detection of a payroll fraud?
A) Distributing paychecks directly to department store employees.
B) Setting the pay rate for departmental employees.
C) Hiring employees and authorizing them to be added to payroll.
, D) Approving a summary of hours each employee worked during the pay period. answer D)
Approving a summary of hours each employee worked during the pay period.
Which of the following outcomes is a likely benefit of information technology used for internal
control?
A) processing of unusual or nonrecurring transactions
B) enhanced timeliness of information
C) potential loss of data
D) recording of unauthorized transactions answer B) enhanced timeliness of information
Which of the following procedures is considered a test of controls?
A) An auditor reviews the entity's check register for unrecorded liabilities.
B) An auditor evaluates whether a general journal entry was recorded at the proper amount.
C) An auditor interviews and observes appropriate personnel to determine segregation of
duties.
D) An auditor reviews the audit workpapers to ensure proper sign-off. answer C) An auditor
interviews and observes appropriate personnel to determine segregation of duties.
Which of the following factors is most likely to affect the extent of the documentation of the
auditor's understanding of a client's system of internal controls?
A) the industry and the business and regulatory environments in which the client operates
B) the degree to which information technology is used in the accounting function
C) the relationship between management, the board of directors, and stakeholders
D) the degree to which the auditor intends to use internal audit to perform tests answer B) the
degree to which information technology is used in the accounting function
