Chapter 07 – Auditing Internal Control over Financial Reporting
42. Which of the following statements included in management’s assessment of the
effectiveness of internal control over financial reporting would be considered acceptable for
issuing an unqualified opinion?
43. A modification of the standard report is required for all of the following conditions except:
Chapter 07 – Auditing Internal Control over Financial Reporting
44. AAA & Associates recently finished auditing LinktheEarth Corporation’s internal control
over financial reporting. AAA found a number of material weaknesses in the company’s
internal control. LinktheEarth’s management remediated all of the weaknesses that AAA found.
However, the auditors did not have sufficient time to retest the controls. What report should
AAA issue with regards to internal control over financial reporting at year-end?
45. According to the COSO definition of safeguarding of assets
Chapter 07 – Auditing Internal Control over Financial Reporting
46. An auditor will use the IT test data method in order to gain certain assurances with respect
to the
47. Which of the following is true of generalized audit software packages?
48. The advantages of generalized audit software include all of the following except:
Chapter 07 – Auditing Internal Control over Financial Reporting
49. Section 404 of the Sarbanes-Oxley Act includes which of the following?
50. For which of the following internal controls would an auditor be least likely to perform tests
of internal controls closer to the “as of” date?
Chapter 07 – Auditing Internal Control over Financial Reporting
51. Which of the following is false?
52. When testing a computerized accounting system, which of the following is false regarding
the test data approach?
Chapter 07 – Auditing Internal Control over Financial Reporting
53. When an auditor tests a computerized accounting system, which of the following is true of
the test data approach?
54. You are an experienced audit senior. The new staff accountant on your audit team does not
understand what a control deficiency is. Give him a definition of “control deficiency.” Include
examples of two types of control deficiencies.
Chapter 07 – Auditing Internal Control over Financial Reporting
55. You are performing an audit on North South Natural Gas (NSNG). Alana, an NSNG
employee, has responsibility for reconciling bank statements with the company’s cash records.
You determine, however, that Alana has never been taught how to reconcile statements. In
effect, the statements have not been properly reconciled for two years. How would you judge
the significance of this control deficiency? How would you classify this deficiency?
Chapter 07 – Auditing Internal Control over Financial Reporting
56. CBA Associates is auditing a large publicly traded company. The audit of internal controls
over financial reporting has been properly planned and the auditors have already identified
controls to test using a top-down, risk-based approach. What is the next step? Give three
examples of procedures that may be completed in the next step in the audit.
Chapter 07 – Auditing Internal Control over Financial Reporting
57. Trumpeter Corporation is a small publicly traded company that specializes in the restoration
and sale of fine musical instruments. The audit committee is made up of a CEO from a
technology company, a college accounting professor, and a local marketing executive. All are
sufficiently independent from management. Members of the audit committee meet three times a
year. Each time they meet, a different member, who chooses the topics to discuss, leads each
meeting. The audit committee then sends the minutes of its meetings to the company’s CFO.
Solely from this information, what are your conclusions about this audit committee’s role
within the control environment?
Chapter 07 – Auditing Internal Control over Financial Reporting
58. Identify indicators of a material weakness in internal control over financial reporting.
Indicators of a material weakness in ICFR include (see Table 7-7):
59. AS5 requires that the auditor appropriately document the processes, procedures, judgments,
and results relating to the audit of internal control. Specifically, what must this documentation
include?
Chapter 07 – Auditing Internal Control over Financial Reporting
60. What is wrong with the following report on internal control over financial reporting for AB
Corporation? The auditor believes an unqualified opinion on the effectiveness of internal
Chapter 07 – Auditing Internal Control over Financial Reporting
Chapter 07 – Auditing Internal Control over Financial Reporting
61. On the audit of Technology Unlimited, a leading manufacturer of computer chips, the
external audit staff discovers that the internal audit staff has performed extensive evaluation
and testing on the control environment. What should the external auditors do to determine the
extent to which they may use the work of the internal audit staff? Can the external audit staff
rely on the internal audit staff for evaluating and testing the control environment?
Chapter 07 – Auditing Internal Control over Financial Reporting
62. Information Nation has two hundred locations spread across the fifty states. Twenty of the
locations are considered to be individually important, but fifty of the locations are not important
even when aggregated from the others. Five locations deal with foreign exchange trading.
These locations are not considered important, but they are important when aggregated with the
other locations. As an auditor, discuss the considerations involved in testing multiple locations
and group the locations accordingly (provide how many locations are included in each group).
Include the treatment that each group should receive from the auditor.
Chapter 07 – Auditing Internal Control over Financial Reporting
63. Discuss the differences between a control deficiency, a significant deficiency, a material
weakness, and the two dimensions of the control deficiency-likelihood and magnitude.
Chapter 07 – Auditing Internal Control over Financial Reporting
64. Discuss entity-level controls and provide examples of these types of controls.