Auditingtest bank chapter 10.docx
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Auditingtestbankchapter10
AuditingandAssuranceServices,15e（Arens）
Chapter10InternalControl,ControlRisk,andSection404Audits
LearningObjective10-1
1）Whichofthefollowingisnotoneofthethreeprimaryobjectivesofeffectiveinternalcontrol?
A）Reliabilityoffinancialreporting
B）Efficiencyandeffectivenessofoperations
C）Compliancewithlawsandregulations
D）Assuranceofeliminationofbusinessrisk
Answer:
D
Terms:
Internalcontrolobjectives
Diff:
Easy
Objective:
LO10-1
AACSB:
Analyticskills
2）Whichofmanagement'sassertionswithrespecttoimplementinginternalcontrolsistheauditorprimarilyconcerned?
A）Efficiencyofoperations
B）Reliabilityoffinancialreporting
C）Effectivenessofoperations
D）Compliancewithapplicablelawsandregulations
Answer:
B
Terms:
Management'sassertions
Diff:
Easy
Objective:
LO10-1
AACSB:
Reflectivethinkingskills
3）Internalcontrols:
A）areimplementedbyandaretheresponsibilityoftheauditors.
B）consistofpoliciesandproceduresdesignedtoprovidereasonableassurancethatthecompanyachievesitsobjectivesandgoals.
C）guaranteethatthecompanycomplieswithalllawsandregulations.
D）onlyapplytoSECcompanies.
Answer:
B
Terms:
Internalcontrol
Diff:
Moderate
Objective:
LO10-1
AACSB:
Analyticskills
4）Internalcontrolsarenotdesignedtoprovidereasonableassurancethat:
A）allfraudswillbedetected.
B）transactionsareexecutedinaccordancewithmanagement'sauthorization.
C）thecompany'sresourcesareusedefficientlyandeffectively.
D）companypersonnelcomplywithapplicablerulesandregulations.
Answer:
A
Terms:
Internalcontrols;reasonableassurance
Diff:
Moderate
Objective:
LO10-1
AACSB:
Analyticskills
5）Describeeachofthethreebroadobjectivesmanagementtypicallyhasforinternalcontrol.Withwhichoftheseobjectivesistheauditorprimarilyconcerned?
Answer:
Thethreeobjectivesare:
•Reliabilityoffinancialreporting.ManagementhasbothalegalandprofessionalresponsibilitytobesurethattheinformationisfairlypresentedinaccordingwithreportingrequirementssuchasU.S.GAAPandIFRS.
•Efficiencyandeffectivenessofoperations.Controlswithinanorganizationaremeanttoencourageefficientandeffectiveuseofitsresourcestooptimizethecompany'sgoals.
•Compliancewithlawsandregulations.Public,non-public,andnot-for-profitorganizationsarerequiredtofollowmanylawsandregulations.Somerelatetoaccountingonlyindirectly,suchasenvironmentalprotectionandcivilrightslaws.Othersarecloselyrelatedtoaccounting,suchasincometaxregulationsandanti-fraudlegalprovisions.
Theauditor'sfocusinboththeauditoffinancialstatementsandtheauditofinternalcontrolsisonthecontrolsoverthereliabilityoffinancialreportingplusthosecontrolsoveroperationsandcompliancewithlawsandregulationsthatcouldmateriallyaffectfinancialreporting.
Terms:
Threebroadobjectivesmanagementhasforinternalcontrol
Diff:
Easy
Objective:
LO10-1
AACSB:
Reflectivethinkingskills
6）Section404oftheSarbanes-OxleyActrequiresthatpubliccompaniesissueaninternalcontrolreport.
A）True
B）False
Answer:
A
Terms:
Sarbanes-OxleyAct
Diff:
Easy
Objective:
LO10-1
AACSB:
Reflectivethinkingskills
Topic:
SOX
7）Managementhasalegalandprofessionalresponsibilitytobesurethatthefinancialstatementsarepreparedinaccordancewithreportingrequirementsofapplicableaccountingframeworks.
A）True
B）False
Answer:
A
Terms:
Internalcontrol
Diff:
Moderate
Objective:
LO10-1
AACSB:
Reflectivethinkingskills
LearningObjective10-2
1）Whichofthefollowingisresponsibleforestablishingaprivatecompany'sinternalcontrol?
A）SeniorManagement
B）InternalAuditors
C）FASB
D）Auditcommittee
Answer:
A
Terms:
Internalcontrol
Diff:
Easy
Objective:
LO10-2
AACSB:
Reflectivethinkingskills
2）Twokeyconceptsthatunderliemanagement'sdesignandimplementationofinternalcontrolare:
A）costsandmateriality.
B）absoluteassuranceandcosts.
C）inherentlimitationsandreasonableassurance.
D）collusionandmateriality.
Answer:
C
Terms:
Internalcontroldesignandimplementation
Diff:
Easy
Objective:
LO10-2
AACSB:
Analyticskills
3）ThePCAOBplacesresponsibilityforthereliabilityofinternalcontrolsoverthefinancialreportingprocesson:
A）thecompany'sboardofdirectors.
B）theauditcommitteeoftheboardofdirectors.
C）management.
D）theCFOandtheindependentauditors.
Answer:
C
Terms:
PCAOB;internalcontrolresponsibility
Diff:
Easy
Objective:
LO10-2
AACSB:
Reflectivethinkingskills
Topic:
Public
4）Whichofthefollowingpartiesprovidesanassessmentoftheeffectivenessofinternalcontroloverfinancialreportingforpubliccompanies?
A）
Management
Financialstatementauditors
Yes
Yes
B）
Management
Financialstatementauditors
No
No
C）
Management
Financialstatementauditors
Yes
No
D）
Management
Financialstatementauditors
No
Yes
Answer:
A
Terms:
Internalcontroleffectiveness
Diff:
Easy
Objective:
LO10-2
AACSB:
Reflectivethinkingskills
5）Anactoftwoormoreemployeestostealassetsandcovertheirtheftbymisstatingtheaccountingrecordswouldbereferredtoas:
A）collusion.
B）amaterialweakness.
C）acontroldeficiency.
D）asignificantdeficiency.
Answer:
A
Terms:
Employeesstealassets
Diff:
Easy
Objective:
LO10-2
AACSB:
Ethicalunderstandingandreasoningabilities
6）Sarbanes-Oxleyrequiresmanagementtoissueaninternalcontrolreportthatincludestwospecificitems.Whichofthefollowingisoneofthesetworequirements?
A）Astatementthatmanagementisresponsibleforestablishingandmaintaininganadequateinternalcontrolstructureandproceduresforfinancialreporting
B）Astatementthatmanagementandtheboardofdirectorsarejointlyresponsibleforestablishingandmaintaininganadequateinternalcontrolstructureandproceduresforfinancialreporting
C）Astatementthatmanagement,theboardofdirectors,andtheexternalauditorsarejointlyresponsibleforestablishingandmaintaininganadequateinternalcontrolstructureandproceduresforfinancialreporting
D）Astatementthattheexternalauditorsaresolelyresponsible
Answer:
A
Terms:
Sarbanes-Oxley;Internalcontrolreport
Diff:
Easy
Objective:
LO10-2
AACSB:
Reflectivethinkingskills
Topic:
SOX
7）Whenmanagementisevaluatingthedesignofinternalcontrol,managementevaluateswhetherthecontrolcandowhichofthefollowing?
A）
Detectmaterialmisstatements
Correctmaterialmisstatements
Yes
Yes
B）
Detectmaterialmisstatements
Correctmaterialmisstatements
No
No
C）
Detectmaterialmisstatements
Correctmaterialmisstatements
Yes
No
D）
Detectmaterialmisstatements
Correctmaterialmisstatements
No
Yes
Answer:
C
Terms:
Internalcontroldesign
Diff:
Easy
Objective:
LO10-2
AACSB:
Analyticskills
Topic:
SOX
8）Whenonematerialweaknessispresentattheendoftheyear,managementofapubliccompanymustconcludethatinternalcontroloverfinancialreportingis:
A）insufficient.
B）inadequate.
C）ineffective.
D）inefficient.
Answer:
C
Terms:
Internalcontrolweakness;Publiccompany
Diff:
Easy
Objective:
LO10-2
AACSB:
Analyticskills
Topic:
Public
9）Theauditorsprimarypurposeinauditingtheclient'ssystemofinternalcontroloverfinancialreportingis:
A）topreventfraudulentfinancialstatementsfrombeingissuedtothepublic.
B）toevaluatetheeffectivenessofthecompany'sinternalcontrolsoverallrelevantassertionsinthefinancialstatements.
C）toreporttomanagementthattheinternalcontrolsareeffectiveinpreventingmisstatementsfromappearingonthefinancialstatements.
D）toefficientlyconducttheAuditofFinancialStatements.
Answer:
B
Terms:
Primarypurposetoauditsystemofinternalcontrol
Diff:
Moderate
Objective:
LO10-2
AACSB:
Analyticskills
Topic:
Public
10）Managementmustdisclosematerialweaknessesininternalcontrolinitsauditreport:
A）whenevertheweaknessisdeemedsignificanttoasingleclassoftransactions.
B）whenevertheweaknessissignificanttooverallfinancialreportingobjectives.
C）iftheweaknessexistsattheendoftheyear.
D）onlyiftheauditoridentifiestheweaknessassignificant.
Answer:
C
Terms:
Materialweaknessesininternalcontrol
Diff:
Moderate
Objective:
LO10-2
AACSB:
Reflectivethinkingskills
Topic:
Public
11）Inperformingtheauditofinternalcontroloverfinancialreportingtheauditoremphasizesinternalcontroloverclassoftransactionsbecause:
A）theaccuracyofaccountingsystemoutputsdependsheavilyontheaccuracyofinputsandprocessing.
B）theclassoftransactioniswheremostfraudschemesoccur.
C）accountbalancesarelessimportanttotheauditorthenthechangesintheaccountbalances.
D）classesoftransactionstestsarethemostefficientmannertocompensateforinherentrisk.
Answer:
A
Terms:
Internalcontroloverclassoftransactions
Diff:
Moderate
Objective:
LO10-2
AACSB:
Reflectivethinkingskills
Topic:
Public
12）Internalcontrolscanneverberegardedascompletelyeffective.Evenifcompanypersonnelcoulddesignanidealsystem,itseffectivenessdependsonthe:
A）adequacyofthecomputersystem.
B）properimplementationbymanagement.
C）abilityoftheinternalauditstafftomaintainit.
D）competencyanddependabilityofthepeopleusingit.
Answer:
D
Terms:
Internalcontroleffectiveness
Diff:
Moderate
Objective:
LO10-2
AACSB:
Ethicalunderstandingandreasoningabilities
13）Whenconsideringinternalcontrols,animportantpointtoconsideristhat:
A）auditorscanignorecontrolsaffec
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