Notes

Chapter 05

Risk Assessment: Internal Control Evaluation

Multiple Choice Questions

1. An audit team's responsibility would not include 

A. Designing client's internal controls.

B. Documentation of understanding of a client's internal controls.

C. Communicating internal control deficiencies.

D. Assessing the effectiveness a client's internal controls.

2. The appropriate separation of duties does not include 

A. Authorization to execute transactions.

B. Recording of transactions.

C. Custody of assets involved in the transactions.

D. Data preparation.

3. A set of characteristics that helps to define a seriousness about employees' attitudes about the control activities in a company is referred to as 

A. Management assertions.

B. The control environment.

C. Control risk assessment.

D. Functional responsibilities.

4. Control activities intended to ensure that transactions are recorded in the right period are designed to achieve the ASB assertion of 

A. Occurrence.

B. Accuracy.

C. Valuation or allocation.

D. Cutoff.

5. Sound internal control can described as separating all of the following duties and responsibilities except for 

A. Transaction authorization.

B. Recordkeeping.

C. Custody of, or direct access to, assets.

D. Hiring of employees.

6. After obtaining an understanding of the entity's internal control and assessing control risk, an auditor of a non public company decided not to perform additional tests of controls. The auditor most likely concluded that the 

A. Additional evidence to support a further reduction in control risk was not cost beneficial.

B. Assessed level of inherent risk exceeded the assessed level of control risk.

C. Internal control structure was properly designed and justifiably may be relied on.

D. Evidence obtainable through tests of controls would not support an increased level of control risk.

7. Regardless of the assessed level of control risk, an auditor...