AAP Reviewer
AAP Reviewer
A. Supervision
B. Audit procedures
C. Directing
D. Planning
8. Which of the following procedures 12. The preliminary judgment about
most likely would be included as part materiality and the amount of audit
of an auditor's tests of control evidence accumulated are _______
procedures? related.
A. Inspection. A. Directly
B. Reconciliation. B. Indirectly
C. Confirmation. C. Not
D. Analytical procedures. D. Inversely
25. This involves developing an overall 29. An auditor evaluates the existing
strategy for the expected conduct and internal control in order to
scope of the examination; the nature,
extent and timing of which vary with A. Determine the extent of
the size and complexity, and substantive tests which must be
experience with and knowledge of performed.
the entity. B. Determine the extent of control
tests which must be performed.
A. Audit planning C. Ascertain whether irregularities
B. Audit procedure are probable.
C. Audit program D. Ascertain whether any employees
D. Audit working papers have incompatible functions.
26. The extent of planning will vary 30. Inherent risk and control risk:
according to any of the following,
except: A. Are inversely related to each
other.
A. Size of the audit client. B. Are inversely related to
B. Auditor's experience with the detection risk.
entity and knowledge of the business. C. Are directly related to detection
C. The nature and complexity of the risk.
audit engagement D. Are directly related to audit risk.
D. The assessed level of control
risk.
SEATWORK 2 4. Tests of controls do not include:
A. Reperformance of internal control
1. Internal controls are not designed to
procedures
provide reasonable assurance that:
B. Inquiries about, and observation
of, internal controls which leave no
A. All frauds will be detected.
audit trail.
B. Transactions are executed in
C. Inspection of documentary support
accordance with management's
for transactions evidencing
authorization.
authorization
C. Access to assets is permitted only
D. Analytical procedures involving
in accordance with management's
comparison of operating expenses
authorization.
with budgeted amounts.
D. Company personnel comply with
applicable rules and regulations. 5. Internal controls can never be
considered as absolutely effective
2. Which of the following internal because
control objectives would be most
relevant to the audit? A. Their effectiveness is highly
dependent on the competence and
A. Operational objective integrity of Company's
B. Compliance objective employees.
C. Financial reporting objective B. Controls always have inherent
D. Administrative control objective. weaknesses that can be exploited.
C. Controls are designed to prevent
3. Competence of personnel is and detect only material
misstatements.
necessary to proper recording of
D. None of the above.
transactions and supports
financial statements that are fairly
6. The primary responsibility for
presented. In reviewing the establishing and maintaining an
organization for necessary internal control rests with
competence, which of the following
job types would be of least interest to A. The external auditors
the auditor? B. The internal auditors
C. Management and those charged
A. Corporate controller. with governance
B. Vice-president for marketing. D. The controller or the treasurer
C. Manager of electronic data
processing. 7. The overall attitude and awareness of
D. Chief accountant. an entity's board of directors,
concerning the importance
of the internal control usually is
reflected in its
A. Computer-based controls
B. System of segregation of duties
C. Control environment
D. Safeguards over access to asset.
8. To obtain evidential matter about 11. After obtaining sufficient
control risk, an auditor selects tests understanding of the entity's
from a variety of accounting and internal control
techniques including systems, the auditor should make a
preliminary assessment of
A. Inquiry
B. Analytical procedures A. Audit risk
C. Calculation B. Control risk
D. Confirmation C. Inherent risk
D. Detection risk
9. In an audit of financial statements, an
auditor's primary consideration 12. The fundamental purpose of an
internal control is to
regarding an internal control activity
is whether the control
A. Safeguard the resources of the
organization.
A. Reflects management's B. Provide reasonable assurance
philosophy and operating style that the objectives of the
B. Affects management's financial organization are achieved.
statement assertions C. Encourage compliance with
C. Provides adequate safeguards organization objectives.
over access to assets D. Ensure the accuracy, reliability,
D. Enhances management's decision- and timeliness of information
making processes
13. Which of the following is not one of
the three primary objectives of
effective internal control?
10. Internal control can provide only
reasonable assurance of achieving A. Reliability of financial reporting
entity's control objectives. One factor B. Efficiency and effectiveness of
limiting the likelihood of achieving operations
those objectives is that C. Compliance with laws and
regulations
A. The auditor's primary D. Assurance of elimination of
responsibility is the detection of business risk
fraud
B. The board of directors is active 14. Which of the following is not
and independent medium that can normally be used by
C. The cost of internal control an auditor to record information
should not exceed its benefit. concerning a client's internal control
D. Management monitors internal policies and procedures?
control
A. Narrative memorandum
B. Flowchart
C. Procedures manual
D. Questionnaire
15. An act of two or more employees to 19. The basic concept of internal control
steal assets or misstate records is which recognizes that the cost of
frequently referred to as internal control should
not exceed the benefits expected to
A. Collusion be derived is known as
B. A material weakness
C. A control deficiency A. Management by exception
D. Any of the above. B. Management responsibility
C. Limited liability
16. The management letter is used D. Reasonable assurance
25. An auditor uses the knowledge 29. Internal controls can never be
provided by the understanding of regarded as completely effective.
internal control and the final Even if company personnel could
assessed level of control risk design an ideal system, its
primarily to determine the nature, effectiveness depends on the:
timing, and extent of the
A. Adequacy of the computer system.
A. Attribute tests B. Proper implementation by
B. Tests of controls management.
C. Compliance tests C. Ability of the internal audit staff to
D. Substantive tests maintain it.
D. Competency and dependability
26. Which of the following is not one of of the people using it.
the three primary objectives of
effective internal control? 30. The conclusion reached as a result of
assessing control risk is referred to as
A. Reliability of financial reporting the:
B. Efficiency and effectiveness of
operations A. Assurance provided by internal
C. Compliance with laws and control structure.
regulations B. Determined level of acceptable
D. Each of the above is a primary detection risk
objective of effective internal C. Product of the understanding of
control. internal control.
D. Assessed level of control risk
QUIZ 1 5. Auditors typically rely on internal
controls of their private company
1. If planned detection risk is reduced, clients:
the amount of evidence the auditor A. Only as needed to complete the
accumulates will: audit and satisfy Sarabnes-Oxley
requirements.
A. Increase. B. Only if the controls are
B. decrease determined to be effective.
C. remain unchanged. C. Only if the client asks an auditor
D. be indeterminate. to test controls.
D. Only if the controls are sufficient
2. Tolerable misstatement as set by the to increase Control Risk to an
auditor: acceptable level
A. The planning level of materiality A. The prospective client has fired its
should normally be the larger of the prior auditor.
amount considered for the balance B. The CPA lacks a thorough
sheet versus the income statement. understanding of the prospective
B. The auditors' planning level of client's operations and industry.
materiality may be disaggregated C. The CPA is unable to review the
into smaller "tolerable predecessor auditor's working papers.
misstatements" for the various D. The prospective client is
accounts. unwilling to make financial records
C. Auditors may use various rules of available to the CPA.
thumb to arrive at an evaluation level
of materiality, but not for 19. The risk that the auditors' procedures
determining the planning level of will lead them to conclude that a
materiality. material
D. The amount used for the planning misstatement does not exist in an
should equal that used for evaluation. account balance when in fact such a
misstatement does exist is referred to
16. The auditors will not ordinarily as:
initiate discussion with the audit A. Account risk.
committee concerning the: B. Control risk.
C. Detection risk.
A. Extent to which the work of D. Inherent risk.
internal auditors will influence the
scope of the examination. 20. Auditors begin their assessments of
B. Extent to which change in the inherent risk during audit planning.
company's organization will Which of the following would not
influence the scope of the help in assessing inherent risk during
examination. the planning phase?
C. Details of potential problems
which the auditors believe might A. Obtaining client's agreement on
cause a qualified opinion. the engagement letter.
D. Details of the procedures which B. Obtaining knowledge about the
the auditors intend to apply. client's business and industry.
C. Touring the client's plant and
17. Which of the following would be offices.
least likely to be considered an audit D. Identifying related parties
planning procedure?