When an auditor tests a computerized accounting system, which of the following is true of the test data approach?

When an auditor tests a computerized accounting system, which of the following is true of the test data approach? 

A. Test data are processed by the entity's computer programs under the auditor's control.

B. Test data must consist of all possible valid and invalid conditions.

C. Testing a program at year end provides assurance that the entity's processing was accurate for the entire year.

D. Several transactions of each type must be tested.


Answer: Test data are processed by the entity's computer programs under the auditor's control

When testing a computerized accounting system, which of the following is false regarding the test data approach?

When testing a computerized accounting system, which of the following is false regarding the test data approach? 

A. The test data need to consist of only those valid and invalid conditions in which the auditor is interested.

B. Only one transaction of each type needs be tested.

C. Test data are processed by the entity's computer programs under the auditor's control.

D. The test data must consist of all possible valid and invalid conditions.


Answer: The test data must consist of all possible valid and invalid conditions

Which of the following is false?

Which of the following is false? 

A. Regardless of the achieved level of control risk in connection with the audit of the financial statements, auditing standards require the auditor to perform some substantive procedures for all significant accounts and disclosures.
B. The absence of misstatements in financial statements is considered convincing evidence that existing controls are effective.
C. The audit of internal control is intended to draw conclusions about the effectiveness of internal control over financial reporting as of a specific date.
D. The auditor is required by AS5 to evaluate the implications of the financial statement audit for the effectiveness of internal control over financial reporting.


Answer: The absence of misstatements in financial statements is considered convincing evidence that existing controls are effective

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?

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? 

A. Withdrawals from Federal Bank of more than $5 million must include a manager's signature.

B. At the end of each day at Federal Bank, the total cash in the vault is reconciled with daily registers of deposits and withdrawals.

C. Federal Bank has just started establishing trusts for its customers and it has only set up ten such trusts. Before making an investment for a trust, bank employees must verify that the investment is in accordance with stated investment policies.

D. On an annual basis, Federal Bank management performs credit checks on its loan customers before determining the value of loans it will not be able to collect on.


Answer: At the end of each day at Federal Bank, the total cash in the vault is reconciled with daily registers of deposits and withdrawals

Section 404 of the Sarbanes-Oxley Act includes which of the following?

Section 404 of the Sarbanes-Oxley Act includes which of the following? 

A. A requirement that management of a publicly traded company issues an assessment of internal control that covers the entire year.

B. Specific guidance on what constitutes adequate internal control.

C. A requirement that management of a publicly traded company accepts responsibility for establishing and maintaining adequate internal controls.

D. A requirement that management of a publicly traded company issues an assessment regarding the efficiency of internal control for the year.


Answer: A requirement that management of a publicly traded company accepts responsibility for establishing and maintaining adequate internal controls

The advantages of generalized audit software include all of the following except:

The advantages of generalized audit software include all of the following except: 

A. It involves auditing while the data are being processed (real-time).

B. It is easy to use.

C. The time to develop the application is usually short.

D. An entire population can be examined in some instances.


Answer: It involves auditing while the data are being processed (real-time)

Which of the following is true of generalized audit software packages?

Which of the following is true of generalized audit software packages? 

A. They can be used only in auditing online computer systems.

B. They can be used on any computer without modification.

C. They each have their own characteristics that the auditor must carefully consider before using in a given audit situation.

D. They enable the auditor to perform all manual test procedures less expensively.


Answer: They each have their own characteristics that the auditor must carefully consider before using in a given audit situation

An auditor will use the IT test data method in order to gain certain assurances with respect to the

An auditor will use the IT test data method in order to gain certain assurances with respect to the 

A. Input data.

B. Machine capacity.

C. Procedures contained within the program.

D. Degree of keypunching accuracy.


Answer: Procedures contained within the program

According to the COSO definition of safeguarding of assets

According to the COSO definition of safeguarding of assets 

A. Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur.

B. Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements.

C. Controls over financial reporting are effective if they provide reasonable assurance that asset losses will not occur and that losses are properly reflected in the financial statements.

D. There is no way to create controls that will provide reasonable assurance that asset losses will not occur.


Answer: Controls over financial reporting are effective if they provide reasonable assurance that losses are properly reflected in the financial statements.

AAA & Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting. AAA found a number of material weaknesses in the entity's internal control. Link the Earth'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?

AAA & Associates recently finished auditing LinktheEarth Corporation's internal control over financial reporting. AAA found a number of material weaknesses in the entity's internal control. Link the Earth'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? 

A. Unqualified report.

B. Adverse report.

C. Qualified report.

D. Disclaimer on opinion.


Answer: Adverse report

A modification of the standard report is required for all of the following conditions except:

A modification of the standard report is required for all of the following conditions except: 

A. There is a restriction on the scope of the engagement.

B. There is other information contained in management's report on internal control.

C. Management has concluded that internal controls are not effective.

D. A significant subsequent event has occurred since the date being reported on.


Answer: Management has concluded that internal controls are not effective

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?

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? 

A. Nothing has come to management's attention to suggest that the entity's internal control is less than effective.

B. Statements suggesting only negative assurance.

C. A conclusion that the entity's internal control over financial reporting is effective when a material weakness exists at the end of the reporting period.

D. Disclosure of material weaknesses corrected during the period.


Answer: Disclosure of material weaknesses corrected during the period

Examples of entity-level controls include

Examples of entity-level controls include 

A. Management's risk assessment process.

B. Controls to monitor results of operations.

C. The period-end financial reporting process.

D. All of these are examples of entity-level controls.


Answer: All of these are examples of entity-level controls.

In the context of an audit of internal controls, the auditor must document all of the following except:

In the context of an audit of internal controls, the auditor must document all of the following except: 

A. The extent to which he or she relied upon work performed by others.

B. The auditor's understanding and evaluation of the design of each of the components of the entity's internal control over financial reporting.

C. Transcripts of the auditor's discussion with management concerning the points at which misstatements could occur.

D. The evaluation of any deficiencies discovered that could result in a modification of the auditor's report.


Answer: Transcripts of the auditor's discussion with management concerning the points at which misstatements could occur

Management's written representations concerning internal control are

Management's written representations concerning internal control are 

A. Addressed to the users of the financial statements.

B. Normally drafted by management.

C. Included in the auditor's final report.

D. Signed by the CEO and CFO.


Answer: Signed by the CEO and CFO

To obtain an understanding of significant processes and relevant subprocesses, auditors would be least likely to use which of the following techniques?

To obtain an understanding of significant processes and relevant subprocesses, auditors would be least likely to use which of the following techniques? 

A. Reviewing management documentation.

B. Inquiry.

C. Scanning.

D. Transaction walkthroughs.


Answer: Scanning

Which of the following statements is false?

Which of the following statements is false? 

A. The PCAOB focuses on the financial reporting objective of internal controls.

B. Management is required to base internal controls on a recognized control framework.

C. Most U.S. companies use the internal control framework developed by COSO.

D. All controls relevant to financial reporting are accounting controls.


Answer: All controls relevant to financial reporting are accounting controls

Which of the following is true regarding management's documentation of internal controls?

Which of the following is true regarding management's documentation of internal controls? 

A. Some documentation should focus on controls designed to detect fraud.

B. Documentation should focus on controls over the interim financial reporting process.

C. Documentation must be done on paper.

D. Inadequate documentation is usually considered an insignificant deficiency in internal control.


Answer: Some documentation should focus on controls designed to detect fraud

Which of the following is not an element of management's assessment process for the effectiveness of internal control?

Which of the following is not an element of management's assessment process for the effectiveness of internal control? 

A. Evaluating the likelihood that failure of a control could result in a misstatement.

B. Determining the locations and business units to include in the evaluation.

C. Determining significant deficiencies and material weaknesses in controls.

D. Obtaining the auditor's assessment of the internal control effectiveness.


Answer: Obtaining the auditor's assessment of the internal control effectiveness

The PCAOB's definition of internal control over financial reporting specifically mentions all of the following control activities except:

The PCAOB's definition of internal control over financial reporting specifically mentions all of the following control activities except: 

A. The maintenance of asset records.

B. The segregation of duties.

C. The authorization by management of receipts and expenditures.

D. The safeguarding of assets.


Answer: The segregation of duties