1. Follow to PSA 400, i beg your pardon of the following is correct about internal control system? a. Internal regulate system

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1. According to PSA 400, i beg your pardon of the adhering to is correct about internal manage system? a. Internal manage system refers to all the policies and also procedures embraced by the auditor to assist in achieve management’s objective. B. A strong environment, by itself, certain the effectiveness of the internal manage system. C. In the audit of financial statements, the auditor is only pertained to with those policies and procedures within the accounting and internal manage systems the are relevant to the jae won statements. D. The internal regulate system is confined come those problem which relate straight to the functions of the accounting system. 2. I beg your pardon of the following is correct about internal control? a. Audit and internal control systems provide management with conclusive proof that missions are reached. B. Among the inherent limitations of accounting and internal manage systems is the possibility that the steps may become inadequate early out to transforms in conditions, and compliance with procedures may deteriorate. C. Most interior controls often tend to be directed at non-routine transactions. D. Management does not consider costs that the accounting and internal control systems. 3. That company directors, management, exterior auditors, and also internal auditors all play essential roles in developing a appropriate control environment. Top monitoring is primarily responsible for a. Establishing a ideal environment and specifying overall internal control. B. Reviewing the reliability and integrity of gaue won information and the means used to collect and report together information. C. Ensuring the external and also internal auditors adequately monitor the control environment. D. Implementing and also monitoring controls design by the plank of directors. 4. I beg your pardon of the following finest describe the interrelated contents of inner control? a. Business structure, administration philosophy, and also planning. B. Manage environment, risk assessment, regulate activities, information and communication systems, and monitoring. C. Threat assessment, back-up facilities, responsibility accountancy and natural laws. D. Legal environment of the firm, administration philosophy, and organizational structure. 5. In an audit of financial statements, an auditor’s major consideration about a manage is even if it is it a. Mirrors management’s philosophy and operating style. B. Influence management’s financial explain assertions. C. Gives adequate safeguards over access to assets. D. Enhances management’s decision-making processes. 6. Reliable internal control a. Eliminates risk and also potential loss come the organization. B. Can not be circumvented by management. C. Is unaffected by an altering circumstances and also conditions encountered by the organization. D. To reduce the need for management to review exception reports top top a day-to-day basis. 7. I m sorry of the following statements around internal manage is correct? a. Correctly maintained interior controls reasonably assure the collusion amongst employees can not occur. B. Establishing and maintaining internal regulate is the interior auditor’s responsibility. C. Exceptionally strong control enables the auditor to eliminate substantive tests. D. The cost-benefit relationship need to be thought about in creating internal control. 8. The ultimate objective of assessing regulate risk is to contribute to the auditor’s review of the risk that a. Test of controls may fail to recognize controls appropriate to assertions. B. Material misstatements may exist in the financial statements. C. Mentioned controls requiring distinction of duties may be circumvented through collusion. D. Entity policies might be overridden by senior management. 9. A appropriate understanding that the client’s internal regulate is one integral part of the audit planning process. The outcomes of the expertise a. Must be reported to the shareholders and the SEC. B. Bear no partnership to the level of substantive experimentation to it is in performed. C. Space not report to client management. D. May be offered as the basis for withdrawing native an audit engagement. 10. An entity should consider the cost of a manage in partnership to the risk. I beg your pardon of the complying with controls best reflects this ideology for a large peso invest in heavy machine tools? a. Conducting a weekly physics inventory. B. Placing security guards in ~ every entrance 24 hours a day. C. Imprinting a controlled identification number on every tool. D. Having all dispositions authorized by the vice chairman of sales. 11. Audit evidence worrying segregation that duties ordinarily is best obtained by a. Performing test of transactions that corroborate management’s financial statement assertions b. Observing the employees as they apply details controls. C. Obtaining a flowchart of activities performed by obtainable personnel. D. Occurring audit objectives that reduce manage risk. 12.Which of the adhering to statements about preliminary assessment of manage risks is correct? a. After obtaining an expertise of the bookkeeping and internal regulate systems, the auditor have to make a preliminary assessment of manage risks, in ~ the assertion level, for every accounts or transaction classes. B. The preliminary evaluate of manage risk can be done just after perfect tests that controls. C. The preliminary assessment of manage risk because that a financial assertion is typically low, uneven the auditor is able to identify weaknesses the may suggest ineffectiveness of audit and internal manage system. D. The auditor ordinarily assesses manage risk at high level for part or all assertions when it is not expense efficient to execute tests of controls. 13. Which of the complying with statements worrying control threat is correct? a. When regulate risk is at the best level, an auditor is forced to record the basis for that assessment. B. Control risk might be assessed sufficiently low to remove substantive experimentation for significant transaction classes. C. Once assessing manage risk, one auditor must not consider evidence obtained in prior audits about the procedure of controls. D. Assessing regulate risk and also obtaining an knowledge of one entity’s internal manage may be performed concurrently. 14. Based upon a consideration of internal manage completed in ~ an interim date, the auditor assessed manage risk at a low level and also performed interim substantive tests. The records and also procedures would most likely be tested again at year-end if a. Exam of controls were no performed through the internal auditor throughout the remaining period. B. Internal regulate provides a basis for limiting the extent of substantive testing. C. The auditor provided nonstatistical sampling during the interim duration testing that controls. D. Inquiries and also observations command the auditor to believe that conditions have changed. 15. Back substantive tests may support the accuracy of underlying records, this tests frequently administer no affirmative evidence of distinction of duties since a. Substantive tests seldom guarantee the accuracy the the records if only a person who performs incompatible functions. B. The records may be accurate also though castle are maintained by a person who performs not compatible functions. C. Substantive test relate come the entire period under audit, however tests that controls ordinarily space confined to the duration during i m sorry the auditor is on the client’s premises. D. Plenty of computerized measures leave no audit trace of that performed them, for this reason substantive tests may necessarily be restricted to inquiries and also observation the office personnel. 16. After ~ obtaining an understanding of interior control and also assessing manage risk, an auditor determined not come perform added tests the controls. The auditor most likely concluded the the a. Additional evidence to assistance a more reduction in regulate risk was no cost-beneficial come obtain. B. Assessed level of innate risk gone beyond the assessed level of regulate risk. C. Internal manage was properly designed and also justifiably may be relied on. D. Evidence obtainable with tests that controls would not support an increased assessment of regulate risk. 17. The objective of tests of details that transactions performed together tests of controls is come a. Screen the design and also use that entity files such together prenumbered shipping type b. Recognize whether controls have actually been placed in operation. C. Detect material misstatements in the account balances of the jae won statements. D. Evaluate whether controls operated effectively. 18. An auditor wishes to carry out tests that controls top top a client’s cash disbursements procedures. If the controls leaving no audit trail of documentary evidence, the auditor most most likely will check the measures by a. Confirmation and also observation. C. Analysis procedures and confirmation. B. Observation and inquiry. D. Inquiry and analytical procedures 19. Which of the adhering to would no be a an approach used to command tests the controls? a. Inspection b. Walkthrough c. Confirmation d. Observation 20. The auditor is examining copies the sales invoices just for the initials of the person responsible because that checking the extensions. This is an instance of a a. Check of controls c. Double purpose test b. Substantive check d. Check of balances 21. Which of the following types of evidence would one auditor most most likely examine to recognize whether controls room operating together designed? a. Confirmations of receivables verifying account balances. B. Letters of depictions corroborating list pricing. C. Attorneys’ responses to the auditor’s inquiries. D. Client records documenting the usage of computer programs. 22. Which of the complying with procedures worrying accounts receivable is one auditor most most likely to do to attain evidential matter in assistance of an assessed level of regulate risk listed below the best level? a. Sending confirmation requests to an entity’s major customers come verify the presence of account receivable. B. Inspecting one entity’s evaluation of accounts receivable for unusual balances. C. Comparing an entity’s uncollectible accounts cost to yes, really uncollectible accounts receivable. D. Observing an entity’s employee prepare the schedule of previous due account receivable.> 23. One auditor is least likely to check controls that administer for a. Classification of revenue and expense transactions through product heat b. Approval the the purchase and sale of trade securities c. Segregation of the functions of recording disbursements and also reconciling the financial institution account d. To compare of receiving reports and also vendors’ invoices with acquisition orders 24. In a little company that doesn"t rental an adequate number of employees to permit proper division of responsibilities, efficient internal regulate can it is in strengthened by a. Direct participation by the owner of the service in the record keeping activities of the business. B. Employed of short-lived personnel to help in the separation that duties. C. Delegation that full, clear-cut obligation to every employee for the features assigned to each. D. Engaging a CPA to perform monthly "write up" work. 25. I m sorry of the complying with is true that the communication to administration of material weaknesses in accountancy and inner control? a. Communication must it is in in writing. B. Oral interaction of material weaknesses, when appropriate, would certainly be documented in the audit working papers. C. The communication should show that the auditor had broadly examined the accountancy and internal control system the the client. D. The auditors should show in the interaction that the examination is mainly designed to identify whether the accountancy and internal manage is adequate. QUIZZERS 1. Transaction authorization within an organization may be either particular or general. An instance of particular transaction authorization is the a. Approval that a construction budget plan for a new warehouse b. Setup of automatic reorder points c. Facility of a customer’s credit boundaries d. Establishment of sales price 2. Internal regulate should carry out reasonable (but not necessarily absolute) assurance which means that: a. The cost of control activities should not exceed the benefits. B. Internal control is management’s, not auditor’s, responsibility. C. One attestation engagement around management’s internal control assertions may not have to detect every reportable conditions. D. Over there is constantly a threat that reportable conditions may an outcome in product misstatements. 3. I m sorry of the complying with statements is an example of an inherent limitation of internal control. A. Errors might arise indigenous mistakes in judgments. B. The efficiency of manage procedures counts on segregation of duties. C. Actions are designed to guarantee that transactions are executed as monitoring authorities. D. Computers process big numbers of transactions. 4. Appropriate segregation of practical responsibilities calls because that separation that the functions of a. Authorization, execution, and recording. C. Custody, execution, and reporting. B. Authorization, execution, and payment. D. Authorization, payment, and also recording. 5. Which of the following is a duty that have to not be assigned to only one employee? a. Accessibility to securities in the company’s for sure deposit box. B. Custodianship that the cash working fund. C. Reconciliation of bank statement. D. Custodianship of devices and small equipment. 6. I beg your pardon of the following tasks would be least likely to strengthen a company’s interior control? a. Maintaining insurance because that fire and also theft. B. Separating audit from other financial operations. C. Fixing obligation for the power of employee duties. D. Very closely selecting and training employees. 7. As generally conceived, the “audit committee” that a publicly held firm should be consisted of of a. Members of the board of director who room not officers or employees. B. To represent of the significant equity understand (bonds, desired stock, typical stock). C. The audit partner, the chef financial officer, the legit counsel, and also at least one outsider. D. To represent from the client’s management, investors, suppliers, and customers. 8. Once considering internal control, the auditor’s primary worry is to recognize a. The dependability of the bookkeeping information system. B. The possibility of fraud occurring. C. Compliance with policies, plans, and procedures. D. The form of one opinion he will certainly issue. 9. The the following, the ideal statement that the CPA’s primary objective in considering internal manage is that the testimonial is to plan to carry out a. A basis for reliance top top the system and also determining the scope of other auditing procedures. B. Reasonable security against customer fraud and defalcations by customer employees. C. A basis for constructive suggestions to the customer for enhancing his internal control system. D. A method for ensuring the there is reasonable assurance that the gaue won statements space reliable. 10. As soon as an auditor assesses manage risk below the maximum level, the auditor is required to record the auditor’s Basis because that concluding that knowledge of the entity’s internal manage Risk is listed below the maximum level control structure aspects a. B. C. D. yes No yes No yes No No correct 11. The succession of measures in gathering evidence as the basis of the auditor’s opinion is a. Substantive tests, documentation of regulate structure, and tests that controls b. Documentation of manage structure, tests of controls, and also substantive exam c. Documentation of control structure, substantive tests, and also tests that controls d. Exam of controls, documentation of regulate structure, and also substantive tests 12. In obtaining an expertise of one entity’s internal manage structure, one auditor is forced to obtain knowledge about the a. B. C. D. Operating efficiency of Policies and also procedures correctly No correct No design of policies and also procedures correct Yes No No 13. Which of the following audit approaches most likely would carry out an auditor with the most assurance around the efficiency of the operation on an internal regulate procedure? a. Check with outside parties c. Recomputation of account balance b. Monitoring of client personnel d. Inquiry of client personnel 14. I m sorry of the complying with is the exactly order because that performing the auditing actions A through C listed below A = tests of Controls B = ready of a flowchart portraying the client’s internal manage structure C = Substantive tests a. Alphabet b. BAC c. ACB d. BCA 15. After considering a client’s inner control, an auditor has concluded that the mechanism is fine designed and is functioning together anticipated. Under this circumstances, the auditor would most likely a. Stop to perform additional substantive exam b. Not rise the level of planned substantive test c. Rise the extent of anticipated analytical procedures d. Execute all test of controls come the level outlined in the preplanned audit regime 16. ~ considering inner control, one auditor can decide to a. Boost the extent of tests of controls and substantive exam in areas where internal manage is solid b. Increase the level of substantive exam in areas where internal manage is weak c. Minimize the extent of test of controls in areas where internal regulate is strong d. Minimize the degree of both substantive tests and also tests that controls in areas where internal regulate is solid 17. To acquire an understanding of the relevant policies and also procedures of internal control, the auditor performs all of the adhering to except: a. Make inquiries c. Make observations b. Architecture substantive test d. Check documents and records 18. In an auditor’s factor to consider of interior control, the completion of a questionnaire is many closely linked with i beg your pardon of the following? a. Separation of duties c. Flowchart accuracy b. Understanding the system d. Test of controls 19. Prior to relying top top the device of internal control, the auditor obtains a reasonable level of assurance the the internal control procedures room in use and also operating as planned. The auditor obtains this assurance by performing planned a. Substantive test c. Transaction test b. Test of controls d. Tests of trends and ratios 20. After ~ obtaining an knowledge of a client’s controls, an auditor might decide come omit tests of the controls. I beg your pardon of the following in not appropriate reason to omit exam of controls? a. The controls duplicate various other controls. B. The controls appear adequate. C. Reportable problems preclude assessing control risk below the maximum. D. The effort to test controls exceeds the initiative saved by not performing substantive tests. 21. In general, a product weakness in internal control may be characterized as a condition in which material errors or irregularities might occur and also not it is in detected in ~ a timely period by a. An elevation auditor throughout tests that controls. B. Monitoring when reviewing interim jae won statements and reconciling account balances. C. Employee in the normal course the performing your assigned functions. D. External consultants who problem a special-purpose report ~ above internal regulate structure. 22. Internal manage procedures are not draft to carry out reasonable assurance the a. Transactions room executed in accordance with management"s authorization. B. Access to legacy is permitted just in accordance v management"s authorization. C. Irregularities will certainly be eliminated. D. The taped accountability for assets is compared with the currently assets at reasonable intervals. 23. A an additional purpose the the auditor"s factor to consider of internal regulate is to provide a. A basis because that assessing control risk. B. An assurance the the records and documents have actually been maintained in accordance with existing company policies and procedures. C. A basis because that constructive suggestions around improvements in internal manage structure. D. A basis for the determination of the resultant degree of the tests come which auditing steps are to be restricted. 24. The auditor"s testimonial of the client"s internal manage is documented in order come substantiate a. Conformity the the accounting records with GAAP. B. Adherence to requirements of management. C. Compliance through generally embraced auditing standards. D. The same of the financial explain presentation. 25. A consideration of internal regulate made throughout an audit is usually not sufficient to to express an opinion on one entity"s controls because a. Weaknesses in the system might go unnoticed during the audit engagement. B. A consideration of internal regulate is no necessarily made throughout an audit engagement. C. Only those controls on i m sorry an auditor intends to depend are reviewed, tested, and evaluated. D. Controls can adjust each year. 26. The accountant"s report expressing an opinion on one entity"s internal controls should state that the a. Objectives of the client"s internal controls room being met. B. Factor to consider of the internal controls was performed in accordance v generally embraced auditing standards. C. Establishment and also maintenance that internal control is the responsibility of management. D. Innate limitations the the client"s interior controls were examined. 27. The major objective of measures performed to obtain an understanding of internal control is to provide an auditor with a. Evidential matter to use in to reduce detection risk. B. A basis from i beg your pardon to change tests that controls. C. Knowledge vital to setup the audit. D. Information essential to prepare flowcharts. PSA 400 – danger Assessments and also Internal control 28. I beg your pardon of the following is not part of the manage environment? a. Administration philosophy and also operating style. B. Organizational structure and also methods of assigning authority and responsibility. C. Information and communication systems. D. The duty of the board of directors and also its committees. 29. When obtaining an understanding of the bookkeeping and internal regulate system the auditor may trace a few transactions v the accountancy system. This an approach is: a. Reperformance check c. Walk-through check b. Test of transactions d. Validity check 30. Which of the adhering to least most likely affects the nature, timing, and extent of the procedures performed by the auditor to obtain an knowledge of the bookkeeping and internal control systems of an audit client? a. Materiality considerations b. The auditor’s assessment of inherent risk c. The level of agree detection danger d. The size and complexity that the entity and of its computer system 31. The review of deviations the were observed upon perfect tests the controls a. May require the require for doing more extensive expertise of control. B. May require more extensive test of controls. C. Constantly requires documentation of the communication of evaluate of manage risk. D. May require modification of the nature, timing, and extent of planned substantive procedures. 32. The following statements space true around observation when provided as test of manage procedures, except. A. The auditor may supplement his observations with other tests of control capable of offering audit evidence. B. Audit evidence acquired by doing observation pertains just to the suggest in time at which the procedure to be applied. C. Observation of who applies a manage procedure is helpful as a check of control procedures when assessing control efficiency of both computerized and also manual device d. Ordinarily, do inquiries provides much more reliable audit evidence than doing observation when experimentation segregation of practical responsibilities. 33. Exam of controls may include the following, except: a. Reperformance the internal manage procedures b. Inquiries about, and observation of, internal controls which leave no audit trail. C. Investigate of documentary support for transactions evidencing authorization d. Analysis procedures involving comparison the operating costs with budgeted amount. 34. Tests of controls space performed to acquire audit evidence around the effectiveness of the a. Operation of the inner controls at the time the tests are being applied. B. Operations of the inner controls in remove fraud and also errors. C. Architecture of the internal controls in eliminating fraud and also errors. D. Architecture of the bookkeeping and internal controls systems. 35. The auditor should think about whether the evaluate of regulate risk is shown a. Upon completion of knowledge of interior control. B. Upon perfect of tests of controls c. Before the last audit program is completed. D. Top top the conclusion the the audit, based on the results of substantive procedures and other audit evidence obtained. PSA 402 – Audit Considerations Relating to entities Using organization Organizations 36. I m sorry of the complying with is the very least likely taken into consideration by the auditor in determining the definition of organization organization tasks to the client and the relevance to the audit? a. Terms of contract and relationship in between the client and the business organization. B. The product financial explain assertions the are influenced by the use of the organization organization. C. Client"s inner controls that are used to the transactions handle by the business organization. D. The control policies and procedures the the client of requiring that all payments because that goods and services be sustained by receiving reports. 37. As soon as the auditor considers that the company organization tasks are far-ranging to the client and appropriate to the audit and also he concludes that it would certainly be reliable to acquire audit evidence from tests of regulate to assistance an evaluate of regulate risk at a lower level. Such proof may be acquired by, other than a. Performing exam of the client"s controls over activities of the service organization. B. Obtaining a service organization auditor"s report the expresses an opinion as to the operating effectiveness of the service organization"s accounting and internal manage systems because that the handling applications pertinent to the audit. C. Visiting the organization organization and performing test of control. D. Review the service contract between the client and the service organization. 38. Which statement is incorrect concerning the customer auditor’s usage of service organization auditor’s report? a. When using a service organization auditor’s report, the customer auditor should consider the nature of and also content of that report. B. The client auditor should take into consideration the border of work-related performed through the service organization auditor and also should assess the usefulness and appropriateness the reports issued by the organization organization auditor. C. Once a form B report is come be used as proof to assistance a lower manage risk assessment, a customer auditor would consider whether the controls tested by the organization organization auditor are pertinent to the client"s transactions (significant assertions in the client"s gaue won statements) and whether the company organization auditor"s exam of control and the results are adequate. D. Since form A reports might be advantageous to a client auditor in obtaining the required understanding that the audit and internal manage systems, one auditor might use such reports as a basis for reducing the evaluate of manage risk. 39. I m sorry of the complying with is the least problem of the customer auditor in reviewing the report of organization organization auditor top top suitability of internal control architecture of the business organization? a. The accuracy of description of the company organization"s accountancy and internal manage systems, ordinarily all set by the administration of the organization organization. B. The systems" controls have been inserted in operation. C. The audit and internal regulate systems are suitably designed to attain their proclaimed objectives. D. The form of documentation the the expertise of the organization organization’s manage system. 40. Which of the adhering to is least likely entitled to the report of the business organization auditor top top the suitability the the design and also operating performance of the service organization? a. Company organization’s management c. Client’s auditors b. Company organization’s client d. Company organization’s stockholders