Practice for final exam part 1 (MCQ's)-IAF520

The auditor's primary concern with regard to internal controls is

• the impact the controls have on the accuracy of the accounting records

• the degree to which the internal controls are working as designed

• the possibility of an inherent risk that has to be controlled

• the amount of substantive work to be saved by testing controls instead

Which of the following is true regarding the financial statement assertions?

• All assertions can be proved using only substantive procedures, but it would be too costly.

• Some assertions are virtually impossible to prove without some evaluation of control effectiveness.

• Some assertions can be proved using only an evaluation of control effectiveness.

• The evaluation of control effectiveness is only used because it is more efficient than using only substantive procedures.

Which of the following statements is true?

• Testing of controls is the most cost-efficient way of designing each audit.

• Substantive testing is the most cost-efficient way of designing each audit.

• As the work of testing of controls increases, the cost of substantive work increases.

• There is a point where further testing of controls becomes more expensive than performing substantive tests.

Monthly comparison of the accounts receivable control account balance to the total of customer balances from A/R subsidiary ledger is an example of what general control category?

• Periodic comparison and reconciliation

• Performance reviews

• Supervision

• Segregation of responsibilities

Which of the following selection methods is least likely to result in a sample representative of all transactions?

• Block sampling

• Random sampling

• Haphazard sampling

• Systematic sampling

Which of the following audit procedures is NOT typically used in audit sampling applications?

• Observation of personnel and procedures.

• Physical count of tangible assets.

• Recalculation.

• Confirmation.

In an auditing context, which of the following scenarios describes a type II error?

• An auditor applies non-statistical sampling methodology to a randomly selected sample.

• An auditor fails to uncover a material misstatement in an account that is, in reality, materially misstated.

• An auditor applies statistical sampling methodology to a non-randomly selected sample.

• An auditor concludes that an account is materially misstated, when in reality, it is not materially misstated.

In testing controls over invoices, an auditor discovers that in 10% of her statistical sample invoices were for amounts greater than the actual quantity shipped. In such a case, an appropriate response for her would be to__________.

• increase her sample size to determine the extent of the control weakness

• recalculate control risk to determine if there is any effect on the nature, timing, or extent of her year-end procedures

• conclude that controls are working at 90% effectiveness and classify control risk as low

• consult with her partner to consider launching a fraud investigation

Which of the following lists outlines the best order for a typical sequence of activities in the revenue and collection cycle?

• Delivering goods, billing customers, credit granting, collection activity.

• Customer ordering, delivering goods, billing customer, cash receipts.

• Customer ordering, delivering goods, credit granting, collection activity.

• Credit granting, billing customers, delivering goods, cash receipts.

When the credit manager decides a customers' account is considered to be uncollectible, the decision should be reviewed by the controller to ________.

• ensure the bad debts account is within budget

• ensure the credit manager has not written off the account as a favour to a friend

• begin a lawsuit to collect the money

• inform the police