Chapter 06 – Internal Control in a Financial Statement Audit
1. The concept of internal control includes IT systems and manual systems.
2. The auditor must understand internal control before assessing inherent risk.
3. The extent of an entity’s use of IT can affect any of the components of internal control.
Chapter 06 – Internal Control in a Financial Statement Audit
5. Internal control consists of six components.
6. Internal control includes monitoring of controls.
7. A reliance strategy is used when control risk has been set at the maximum level.
Chapter 06 – Internal Control in a Financial Statement Audit
8. A substantive strategy is used when control risk has been set at the maximum level.
9. Once a level of control risk has been established, it cannot be changed.
10. Tests of controls must be performed if control risk is set below the maximum level.
Chapter 06 – Internal Control in a Financial Statement Audit
11. A primary purpose of internal controls is to
12. Internal controls are not designed to provide reasonable assurance that
Chapter 06 – Internal Control in a Financial Statement Audit
13. The basic concept of internal control that recognizes the cost of internal control should not
exceed the benefits expected to be derived is known as
14. An auditor would most likely be concerned with internal control policies and procedures
that provide reasonable assurance about the
Chapter 06 – Internal Control in a Financial Statement Audit
15. 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
16. Management philosophy and operating style most likely would have a significant influence
on an entity’s control environment when
Chapter 06 – Internal Control in a Financial Statement Audit
17. Proper monitoring within an internal control framework includes all of the following
except:
18. An entity’s control activities include all of the following except:
Chapter 06 – Internal Control in a Financial Statement Audit
19. Potential benefits of an entity’s controls in an IT environment include all of the following
except:
20. An entity’s IT infrastructure refers to
Chapter 06 – Internal Control in a Financial Statement Audit
21. Auditors are most likely to gather audit evidence solely using substantive procedures
22. Proper segregation of functional responsibilities in an effective system of internal control
calls for separation of the functions of
Chapter 06 – Internal Control in a Financial Statement Audit
23. Factors that the auditor should consider as increasing the effectiveness of the audit
committee include all of the following except whether:
24. The documentation of an auditor’s understanding of internal controls
25. A well-prepared flowchart should make it easier for the auditor to
Chapter 06 – Internal Control in a Financial Statement Audit
26. A flowchart is most frequently used by an auditor in connection with the
27. An advantage of using systems flowcharts to document information about internal control
instead of using internal control questionnaires is that systems flowcharts
Chapter 06 – Internal Control in a Financial Statement Audit
28. Which of the following audit tests would be regarded as a test of controls?
29. The independent auditor selects several transactions in each functional area and traces them
through the entire system, paying special attention to evidence about whether or not the control
activities are in operation. This is an example of a(n)
30. To obtain evidential matter about control risk, an auditor selects tests from a variety of
techniques including
Chapter 06 – Internal Control in a Financial Statement Audit
31. Which of the following procedures most likely would provide an auditor with evidence
about whether an entity’s internal control is suitably designed to prevent or detect material
misstatements?
32. Reports on service organizations typically
Chapter 06 – Internal Control in a Financial Statement Audit
33. Where computer processing is used in significant accounting applications, internal control
activities may be defined by classifying control activities into two types: general and
34. Which of the following input controls is a numeric value computed to provide assurance
that the original value has not been altered in construction or transmission?
35. General controls include all of the following except:
Chapter 06 – Internal Control in a Financial Statement Audit
36. A limit test is a
37. A field test is a
38. An auditor’s primary consideration regarding an entity’s internal controls is whether the
policies and procedures
Chapter 06 – Internal Control in a Financial Statement Audit
39. In evaluating internal control, the auditor is basically concerned that the system provides
reasonable assurance that
40. Of the following statements about an internal control system, which one is correct?
Chapter 06 – Internal Control in a Financial Statement Audit
41. The concept of reasonable assurance in the context of an entity’s internal controls
recognizes that
42. An effective control environment
Chapter 06 – Internal Control in a Financial Statement Audit
43. The control environment component of internal controls includes all of the following
except:
44. Information and communication includes all of the following except:
Chapter 06 – Internal Control in a Financial Statement Audit
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45. An organizational structure is important for all of the following reasons except:
46. The risk assessment component of internal controls refers to
47. As opposed to a manual control, an automated control
Chapter 06 – Internal Control in a Financial Statement Audit
48. An IT specialist is least likely to be necessary when
49. In planning an audit of a new client, an auditor most likely would consider the methods used
to process accounting information because such methods