Auditingtest bank chapter 10.docx

1、Auditing test bank chapter 10Auditing and Assurance Services, 15e (Arens)Chapter 10 Internal Control, Control Risk, and Section 404 Audits Learning Objective 10-11) Which of the following is not one of the three primary objectives of effective internal control?A) Reliability of financial reportingB)

2、 Efficiency and effectiveness of operationsC) Compliance with laws and regulationsD) Assurance of elimination of business riskAnswer: DTerms: Internal control objectivesDiff: EasyObjective: LO 10-1AACSB: Analytic skills2) Which of managements assertions with respect to implementing internal controls

3、 is the auditor primarily concerned?A) Efficiency of operationsB) Reliability of financial reportingC) Effectiveness of operationsD) Compliance with applicable laws and regulationsAnswer: BTerms: Managements assertionsDiff: EasyObjective: LO 10-1AACSB: Reflective thinking skills3) Internal controls:

4、A) are implemented by and are the responsibility of the auditors.B) consist of policies and procedures designed to provide reasonable assurance that the company achieves its objectives and goals.C) guarantee that the company complies with all laws and regulations.D) only apply to SEC companies.Answe

5、r: BTerms: Internal controlDiff: ModerateObjective: LO 10-1AACSB: Analytic skills4) Internal controls are not designed to provide reasonable assurance that:A) all frauds will be detected.B) transactions are executed in accordance with managements authorization.C) the companys resources are used effi

6、ciently and effectively.D) company personnel comply with applicable rules and regulations.Answer: ATerms: Internal controls; reasonable assuranceDiff: ModerateObjective: LO 10-1AACSB: Analytic skills5) Describe each of the three broad objectives management typically has for internal control. With wh

7、ich of these objectives is the auditor primarily concerned?Answer: The three objectives are: Reliability of financial reporting. Management has both a legal and professional responsibility to be sure that the information is fairly presented in according with reporting requirements such as U.S. GAAP

8、and IFRS. Efficiency and effectiveness of operations. Controls within an organization are meant to encourage efficient and effective use of its resources to optimize the companys goals. Compliance with laws and regulations. Public, non-public, and not-for-profit organizations are required to follow

9、many laws and regulations. Some relate to accounting only indirectly, such as environmental protection and civil rights laws. Others are closely related to accounting, such as income tax regulations and anti-fraud legal provisions. The auditors focus in both the audit of financial statements and the

10、 audit of internal controls is on the controls over the reliability of financial reporting plus those controls over operations and compliance with laws and regulations that could materially affect financial reporting.Terms: Three broad objectives management has for internal controlDiff: EasyObjectiv

11、e: LO 10-1AACSB: Reflective thinking skills6) Section 404 of the Sarbanes-Oxley Act requires that public companies issue an internal control report.A) TrueB) FalseAnswer: ATerms: Sarbanes-Oxley ActDiff: EasyObjective: LO 10-1AACSB: Reflective thinking skillsTopic: SOX7) Management has a legal and pr

12、ofessional responsibility to be sure that the financial statements are prepared in accordance with reporting requirements of applicable accounting frameworks. A) TrueB) FalseAnswer: ATerms: Internal controlDiff: ModerateObjective: LO 10-1AACSB: Reflective thinking skillsLearning Objective 10-21) Whi

13、ch of the following is responsible for establishing a private companys internal control?A) Senior ManagementB) Internal AuditorsC) FASBD) Audit committeeAnswer: ATerms: Internal controlDiff: EasyObjective: LO 10-2AACSB: Reflective thinking skills2) Two key concepts that underlie managements design a

14、nd implementation of internal control are:A) costs and materiality.B) absolute assurance and costs.C) inherent limitations and reasonable assurance.D) collusion and materiality.Answer: CTerms: Internal control design and implementationDiff: EasyObjective: LO 10-2AACSB: Analytic skills3) The PCAOB pl

15、aces responsibility for the reliability of internal controls over the financial reporting process on:A) the companys board of directors.B) the audit committee of the board of directors.C) management.D) the CFO and the independent auditors.Answer: CTerms: PCAOB; internal control responsibilityDiff: E

16、asyObjective: LO 10-2AACSB: Reflective thinking skillsTopic: Public4) Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for public companies?A) Management Financial statement auditorsYesYesB) Management Financial statement auditor

17、sNoNoC) Management Financial statement auditorsYesNoD) Management Financial statement auditorsNoYesAnswer: ATerms: Internal control effectivenessDiff: EasyObjective: LO 10-2AACSB: Reflective thinking skills5) An act of two or more employees to steal assets and cover their theft by misstating the acc

18、ounting records would be referred to as:A) collusion.B) a material weakness.C) a control deficiency.D) a significant deficiency.Answer: ATerms: Employees steal assetsDiff: EasyObjective: LO 10-2AACSB: Ethical understanding and reasoning abilities6) Sarbanes-Oxley requires management to issue an inte

19、rnal control report that includes two specific items. Which of the following is one of these two requirements?A) A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reportingB) A statement that management and

20、 the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reportingC) A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an

21、adequate internal control structure and procedures for financial reportingD) A statement that the external auditors are solely responsibleAnswer: ATerms: Sarbanes-Oxley; Internal control reportDiff: EasyObjective: LO 10-2AACSB: Reflective thinking skillsTopic: SOX7) When management is evaluating the

22、 design of internal control, management evaluates whether the control can do which of the following?A) Detect material misstatementsCorrect material misstatementsYesYesB) Detect material misstatementsCorrect material misstatementsNoNoC) Detect material misstatementsCorrect material misstatementsYesN

23、oD) Detect material misstatementsCorrect material misstatementsNoYesAnswer: CTerms: Internal control designDiff: EasyObjective: LO 10-2AACSB: Analytic skillsTopic: SOX8) When one material weakness is present at the end of the year, management of a public company must conclude that internal control o

24、ver financial reporting is:A) insufficient.B) inadequate.C) ineffective.D) inefficient.Answer: CTerms: Internal control weakness; Public companyDiff: EasyObjective: LO 10-2AACSB: Analytic skillsTopic: Public9) The auditors primary purpose in auditing the clients system of internal control over finan

25、cial reporting is:A) to prevent fraudulent financial statements from being issued to the public.B) to evaluate the effectiveness of the companys internal controls over all relevant assertions in the financial statements.C) to report to management that the internal controls are effective in preventin

26、g misstatements from appearing on the financial statements.D) to efficiently conduct the Audit of Financial Statements.Answer: BTerms: Primary purpose to audit system of internal controlDiff: ModerateObjective: LO 10-2AACSB: Analytic skillsTopic: Public10) Management must disclose material weaknesse

27、s in internal control in its audit report: A) whenever the weakness is deemed significant to a single class of transactions.B) whenever the weakness is significant to overall financial reporting objectives.C) if the weakness exists at the end of the year.D) only if the auditor identifies the weaknes

28、s as significant.Answer: CTerms: Material weaknesses in internal controlDiff: ModerateObjective: LO 10-2AACSB: Reflective thinking skillsTopic: Public11) In performing the audit of internal control over financial reporting the auditor emphasizes internal control over class of transactions because:A)

29、 the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing.B) the class of transaction is where most fraud schemes occur.C) account balances are less important to the auditor then the changes in the account balances.D) classes of transactions tests are the mo

30、st efficient manner to compensate for inherent risk.Answer: ATerms: Internal control over class of transactionsDiff: ModerateObjective: LO 10-2AACSB: Reflective thinking skillsTopic: Public12) Internal controls can never be regarded as completely effective. Even if company personnel could design an

31、ideal system, its effectiveness depends on the:A) adequacy of the computer system.B) proper implementation by management.C) ability of the internal audit staff to maintain it.D) competency and dependability of the people using it.Answer: DTerms: Internal control effectivenessDiff: ModerateObjective: LO 10-2AACSB: Ethical understanding and reasoning abilities13) When considering internal controls, an important point to consider is that:A) auditors can ignore controls affec