CHAPTER 6

1. Control activities relate to the following, except

a. Segregation of duties
b. Performance reviews
c. An internal audit function
d. Authorization
2. A basic concept of internal control is the concept of reasonable
assurance, with recognizes that
a. Establishing and maintaining internal control is an
important responsibility of management.
b. Internal control may be ineffective due to collusion among
employees.
c. The cost of an entitys internal control should not exceed
the benefits expected to be derived.
d. Adequate safeguards over access to assets and records
should permit an entity to maintain proper accountability.
3. The primary objective of procedures performed to obtain an
understanding of internal control is to provide an auditor with
a. Knowledge necessary to plan the audit.
b. A basis for modifying tests of controls.
c. Information necessary to prepare flowcharts.
d. Evidence to use in reducing detection risk.
4. Which of the following determines the extent of the auditors
tests of control?
a. Auditors knowledge
b. Auditors initial/planned assessment of control risk
c. Resources available to the auditor
d. Managements desire to help the auditor
5. Which of the following procedures the performed by an auditor
who wants to detect material misstatements at the assertion
level?
a. Compliance tests
b. Tests of control
c. Substantive tests
d. Dual-purpose tests
6. When considering an entitys internal control system, an auditor
is not required to
a. Search for significant deficiencies in the operation of the
internal control system
b. Understand the components of the entitys internal control
system
c. Determine whether relevant controls have been placed in
operation
d. Perform procedures to understand the design of the
internal control system policies
7. The following are components of internal control, except
a. Control activities
b. The entitys risk assessment process
c. Control environment
d. Business risk
8. An entitys internal control system contains manual elements
and often contains automated elements. Manual elements in
internal control may be less reliable than automated elements
because
a. Manual control elements can be more easily bypassed,
ignored, or overridden and they are also more prone to
simple errors and mistakes
b. Manual control elements facilitate the additional analysis of
information
c. Consistency of application if manual control elements can
always be assumed

d. Manual control elements include reliance on systems or

programs that are inaccurately processing data,
processing, or both

9. IT benefits an entitys internal control by enabling an entity to

a. Reduce the risk that controls will be circumvented
b. Process large, unusual or non-recurring transactions
c. Rely on systems or programs that are inaccurately
processing data
d. Allow unauthorized changes to data in master files
10.
The ff are transaction cycles, except
a. General ledger and reporting
b. Human resources
c. Expenditure/Disbursement
d. Revenue/Receipt
11.
The auditor uses the understanding of internal control to
I. Identify types of potential misstatements.
II.
Consider factors that affect the risks of material
misstatement.
III. Design the nature, timing, and extent of further audit
procedures.
a. I and II only
b. I and III only
c. II and III only
d. I, II, and III
12.
The auditors primary objective in obtaining an
understanding of the clients controls over the purchasing
function is to
a. Investigate the recording of unusual transactions regarding
raw materials.
b. Determine the reliability of financial reporting by the
purchasing function.
c. Observe the annual physical count.
d. Ascertain that raw materials paid for are on hand.
13.
The primary responsibility for establishing and maintaining
an internal control rests with
a. The external auditors
b. The internal auditors
c. Management and those charged with governance
d. The controller or the treasurer
14.
Which of the following internal control objectives would be
most relevant to the audit?
a. Operational objective
b. Compliance objective
c. Financial reporting objective
d. Administrative control objective
15.
Basic to a proper control environment are the quality and
integrity of personnel who must perform the prescribed
procedures. Which is not a factor in providing for competent
personnel?
a. Segregation of duties
b. Hiring practices
c. Training programs
d. Performance evaluations