Which of the following best describes the interrelated components of internal control?

Control environment, risk assessment, control activities, information and communication systems, and monitoring

Organizational structure, management philosophy, and planning.

Risk assessment backup facilities, responsibility accounting and natural laws

Legal environment of the firm, management philosophy, and organizational structure.

Which of the following is not typically one of management's concerns in designing an effective internal control structure?

Obtaining the best internal control system possible.

Compliance with applicable laws and regulations

Efficiency and effectiveness of operations.

The auditor's review of the client's internal control is documented in order to substantiate

Conformity of the accounting records, with Philippine Financial Reporting Standards.

Representation as to adherence to requirements of management.

Representation as to compliance with Philippine Standards on Auditing

The fairness of the financial statement presentation.

An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about:

The entity's ability to process and summarize financial data.

The efficiency of management's decision-making process

Appropriate prices that the entity should charge for its products.

Methods of assigning production tasks to employees

When considering the effectiveness of internal control, the auditor should recognize that inherent limitations do exist. Which following is an example of inherent limitations in a client‘s internal control?

In the performance of most control procedures, there are possibilities of errors arising from mistakes in judgment

The effectiveness of procedures depends on the segregation of employee duties.

Procedures are designed to assure the execution and of transactions in accordance with management's authorization

Procedures for handling large numbers of transactions are processed by electronic data processing equipment.

Which of the following is least likely to be an evidence of effectiveness of controls?

Cancellation of supporting document.

The policy of documenting the usage of computer program

Signatures on authorization forms.

Which of the following is an inherent limitation of any client‘s internal control?

The procedures whose effectiveness depends on segregation of duties can be circumvented by collusion.

The benefits expected to be derived from effective internal control should not exceed the costs of such control.

The competence and integrity of client personnel provide an environment conducive to control and provide assurance that effective control will be achieved.

The procedures that are designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against frauds perpetrated by management

A system of internal control, regardless of how carefully designed and implemented, contains certain inherent limitations. Which of the following errors or irregularities is not caused by an inherent limitation?

A computer programmer and a computer operator conspired to divert funds from the company to an account controlled by dishonest employees.

The president and chief executive officer, with the assistance of the corporate controller, inflated earnings by recording fictitious sales at year-end.

A newly-installed electronic data processing system failed to provide for a comparison of sales order amount with prior customer balance and credit limit. This resulted in numerous sales to customers who had already exceeded their credit limits.

Numerous recording errors occurred because persons analyzing and recording transactions did not have the necessary accounting background.

Corporate directors, management, external auditors, and internal auditors all play important roles in creating a proper control environment. Top management is primarily responsible for

Establishing a proper environment and specifying overall internal control.

Reviewing the reliability and integrity of financial information and the means used to collect and report such information.

Ensuring that external and internal auditors adequately monitor the control environment.

Implementing and monitoring controls that are designed by the board of directors

The primary responsibility for establishing and maintaining internal controls rests with the

Securities and Exchange Commission

Which of the following is not a part of the control environment?

Information and communications systems

Management philosophy and operating style

Assignment of authority and responsibility

Internal control is a function of management, and effective control is based upon the concept of charge and discharge of responsibility and duty. Which of the following is an important feature of effective internal control?

Responsibility for the performance of each duty must be fixed

Responsibility for accounting and financial duties should be assigned to one responsible officer.

Responsibility for the accounting duties must be borne by the auditing committee of the company.

Responsibility for accounting activities and duties must be assigned only to employees who are bonded.

The control environment includes which of the following?

Management philosophy and operating style

A proper understanding of the client's internal control is an integral part of the audit planning process. The results of the understanding

May be used as the basis for withdrawing from an audit engagement

Must be reported to the major stakeholders.

always require the auditor in testing the control policies and procedures.

are not reported to client management.

The auditor who becomes aware of reportable conditions is required to communicate such a weakness to the

Senior management and board of directors

Audit committee and client‘s legal counsel

Board of directors and internal directors.

Internal auditors and senior management.

As part of understanding internal controls, an auditor is not required to

Obtain knowledge about the operating effectiveness of internal control

Consider factors that affect the risk of material misstatement

Ascertain whether internal control policies and procedures have been placed in operation

Identify the types of potential misstatements that may occur

The purpose of tests of controls is to provide reasonable assurance that the

Control procedures are functioning as intended

Accounting treatment of transactions and balances is valid and proper

Entity has complied with disclosure requirements of PFRS

Entity has complied with requirements of quality control.

Tests of controls are used to test whether controls are

Placed in operation (implemented)

Properly accumulated into balance sheet totals

Properly documented by the client

After documenting internal control in an audit engagement, the auditor may perform tests on

Those controls that the auditor plans to rely on

Those controls in which deficiencies were identified.

Those controls that have a material effect on the financial statement balances

A random sample of the controls that were reviewed.

Which of the following audit techniques would most likely provide an auditor with the most assurance about the effectiveness of the operation of an internal control procedure?

Confirmation of balances or transactions with outside parties

Recomputation of an account balance

Observation of client personnel

After the study and evaluation of a client's internal control policies and procedures has been completed, an auditor might decide to

Increase the extent of substantive testing in areas where internal controls are weak.

increase the extent of substantive testing in areas where the internal control policies and procedures are strong

Reduce the extent of control testing in areas where the internal control policies and procedures are strong.

Reduce the extent of both substantive and control testing in areas where the internal control policies and procedures are strong

The Philippine Standards on Auditing require the auditor to obtain an understanding of the client's internal controls

sufficient to find any frauds which may exist.

whenever it would be appropriate.

Control testing is performed in order to determine whether or not

the assessed level of control risk can be reduced

The auditor is studying internal control policies and procedures within the sales, shipping, and billing subset of the revenue cycle. Which of the following conditions suggests a need for additional testing of controls?

Internal control is found to be weak with regard to shipping and billing

Internal control over sales, billing; and shipping appears strong but 80% of sales revenue is attributable to three major customers

Internal control over billing and shipping is thought to be strong and the auditor considers additional testing of selected controls will result in a major reduction in substantive testing

Internal control over the recording of sales is found to be weak and the sales are evenly divided among a large number of customers

It is most appropriate that tests of controls be applied to transactions and controls

for the entire period under audit

at each quarterly interim period.

at the beginning of the fiscal period.

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the controls leave no audit trail of documentary evidence; the auditor most likely will test the procedures by

analytical procedures and confirmation

inquiry and analytical procedures

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when

Management is dominated by one individual who is also a shareholder.

The audit committee is active in overseeing the entity's financial reporting policies.

external policies established by parties outside the entity affect its accounting practices

Internal auditors have direct access to the board of directors and entity management.

Of the following control environment characteristics, identify the one that contributes most to effective internal control.

The company has an effective internal audit staff that monitors controls on a continuous basis.

The audit committee consists of the president, two vice-dents, and the corporate controller.

The company does not have a centralized human resource function

The company routinely transacts business with related parties.

Effective internal control requires organizational independence of different departments. Organizational independence would be impaired in which of the following situations?

The controller reports to the vice president of production.

The internal auditors report to the audit committee of the board of directors

The payroll accounting department reports to the chief accountant

The cashier reports to the treasurer

Which of the following statements best describes a weakness often associated with computers?

Computer equipment is more subject to a systems error than manual processing which is subject to human error

Computer equipment processes and records similar transactions in a similar manner.

Control activities for detecting invalid and unusual transactions are less effective than manual control activities

Functions that would normally be separated in a manual system are combined in a computer system.

The financial statements are not likely to correctly reflect Philippine Financial Reporting Standards if

The controls affecting the reliability of financial reporting are inadequate.

The company's controls do not promote efficiency

The company's control do not promote effectiveness

Internal control should provide reasonable (but not necessarily absolute) assurance which means that:

There is always a risk that reportable conditions may result in material misstatements

Internal control is a management's, not auditor's responsibility

An attestation engagement about management's internal control assertion may not necessarily detect all reportable conditions

The cost of control activities should not exceed the benefits

When considering internal control, an auditor must be aware of the concept of reasonable assurance which recognizes that

The segregation of incompatible functions is necessary to obtain assurance that the internal control is effective.

The employment of competent personnel provides assurance that the objectives of internal control will be achieved

The establishment of and maintenance of a system of internal control is an important responsibility of the management and not of the auditor

The cost of internal control should not exceed the benefits expected to be derived from internal control

To qualify as an 'outside director' in an audit committee, one must

Not own any stock in client company.

Not receive any remuneration or expense reimbursement.

Adequate separation of duties within an EDP department would ensure that

the programmer does not have an access to computer operation

the librarian has no physical control over the computer programs

the computer operator does not have access to computer run instructions.

the data control group have as little independence as possible.

Which of the following duties would indicate a weakness in the internal control system?

The custodianship of buildings and equipment is the responsibility of the controller's function.

The accounting function is under the controller

The custodianship of cash is the responsibility of the treasurer's function.

The internal auditor reports to the board of directors.

Control risk is a measure of the auditor's expectation that the internal control structure

Will prevent material misstatements from occurring.

Will detect and correct material misstatements.

Will either prevent material misstatements or detect and correct them

Will neither prevent material misstatements nor detect and correct them.

MODULE 6: CONSIDERATION OF INTERNAL CONTROL

Authored by Christeen Sario

Other

University

Used 4+ times

MODULE 6: CONSIDERATION OF INTERNAL CONTROL

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An auditor considers internal control in order to

Determine whether assets are safeguarded

Suggest improvements in internal control.

Plan audit procedures

Express an opinion

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The primary purpose of the auditor's consideration of internal control is to provide a basis for

Determining whether procedures and records that are concerned with the safeguarding of assets are reliable.

Constructive suggestions to clients concerning deficiencies in internal control

Determining the nature, timing, and extent of audit tests to be applied

Expressions of an opinion.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The primary objective of procedures to be performed in obtaining an understanding of internal control is to provide an auditor with

Evidential matter for use in reducing detection risk

Knowledge necessary to plan the audit

A basis for which to modify tests of controls

Information necessary to prepare flowcharts.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Areas on to establish internal control is to

Have a basis of planning the audit.

Provide reasonable assurance that the objectives of the organization are achieved

Encourage compliance with organizational objectives.

Ensure the accuracy, reliability, and timeliness of information

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the primary purpose of effective internal control organization?

Achievement of certain organizational goals.

Completion of a successful audit for the entity.

Shareholders' involvement in the company's success

Obtaining profitability and financial strength.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An effective internal control is not expected to provide reasonable assurance regarding the achievement of objectives concerning

Reliability of financial reporting.

Compliance to applicable laws and regulations.

Elimination of material misstatements.

Effectiveness and efficiency of operations.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Internal control is primarily established within a company to accomplish which of the following objectives?

Prevent irregularities

Provide reasonable assurance that the company's objective be achieved

Catch all errors that may occur in the company

Aid in the effective auditing of the company

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MODULE 6: CONSIDERATION OF INTERNAL CONTROL

An auditor considers internal control in order to

The primary purpose of the auditor's consideration of internal control is to provide a basis for

The primary objective of procedures to be performed in obtaining an understanding of internal control is to provide an auditor with

Areas on to establish internal control is to

What is the primary purpose of effective internal control organization?

An effective internal control is not expected to provide reasonable assurance regarding the achievement of objectives concerning

Internal control is primarily established within a company to accomplish which of the following objectives?

Which of the following is not an element of an entity's internal control?

One of the major components of an organization's internal control structure includes:

Which of the following best describes the interrelated components of internal control?

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