Question

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QUESTION 1

1. All of the following are management’s objectives in designing effective internal controls over financial reporting (ICFR) except for ______________ ?

   	a.	Comply with section 404 of the Sarabanes Oxley (SOX) act.
   	b.	Producing accurate and complete financial statements and other reports to make operational decisions.
   	c.	Ensure reliability of financial reporting
   	d.	Management review of the year-end financial statements to ensure proper reporting as required by GAAP

1 points   

QUESTION 2

1. Financial auditors follow a defined approach when performing the planning phase of an audit. Which is the most appropriate sequence in audit planning?

   	a.	Understand the client’s business and industry, perform preliminary analytical procedures, set preliminary judgment of materiality and performance materiality.
   	b.	Understand internal control and assess control risk, perform preliminary analytical procedures, set preliminary judgment of materiality and performance materiality.
   	c.	Understand the client’s business and industry, understand internal control and assess control risk, identify significant risks due to fraud or error.
   	d.	Determine audit strategy, understand the client’s business and industry, understand internal control and assess control risk.

1 points   

QUESTION 3

1. The internal control framework widely recognized as the standard by most companies is the COSO integrated framework. Based on this framework, management implements certain key segregation of duties within their accounting function. Which COSO component is this most closely related to?

   	a.	Risk Assessment
   	b.	Information and Communication
   	c.	Control Activities
   	d.	All of the above

1 points   

QUESTION 4

1. Your audit firm has been engaged to perform an integrated audit of a large publicly traded company. The CFO tells you that internal controls over financial reporting do exist in the company but may or may not be documented. The most appropriate course of action for the auditor is __________________.

   	a.	Test for operating effectiveness of controls.
   	b.	Perform inquiry regarding financial operations identifying key controls.
   	c.	Management indicated controls documentation may not exist, therefore auditor can conclude design and operating effectiveness of key controls cannot be substantiated, therefore start substantive test of balance approach.
   	d.	All of the above.

1 points   

QUESTION 5

1. All of the following statements are true except for?

   a.

   Audit hours incurred for an integrated audit of public filer is significantly greater than the extent of testing solely to express an opinion on the financial statements.

   b.

   To express an opinion on internal controls for a large public company, the auditor obtains an understanding of and performs tests of controls for all significant account balances.

   c.

   To express an opinion on internal controls for a large public company, the auditor obtains an understanding of and performs tests of controls for the highest risk account balances.

   d.

   While inquiry and observation may also be performed to evaluate control activities, auditors frequently inspect documentation that demonstrates a control activity was performed.

   An auditor is employing substantive analytical procedures to determine appropriateness of sales and accounts receivable balances. While performing these procedures, the auditor found variances between what she found and what was expected. What is the most appropriate next steps should the auditor take?

   	a.	Determine the cause of the variance and ensure audit workpapers state this cause and rely on the ratio analysis results.
   	b.	Auditor should extend the testing to confirmation of accounts receivable and cutoff tests.
   	c.	Due to material nature of sales and accounts receivables, sufficient evidence exist for a finding based on analytical procedures performed.
   	d.	Determine the cause of variance, document audit workpapers and test key controls related to accounts receivable and sales.

Answer 1

1. d. Management review of the year-end financial statements to ensure proper reporting as required by GAAP

2. b. Understand internal control and assess control risk, perform preliminary analytical procedures, set preliminary judgment of materiality and performance materiality.

3. d. All of the above. The five components of COSO are cotrol environment, risk assessmrnt, information & communication, monitoring activities & Existing control activities.

4. d. All of the above.

5. c. To express an opinion on internal controls for a large public company, the auditor obtains an understanding of and performs tests of controls for the highest risk account balances.

6. c. Auditor should extend the testing to confirmation of accounts receivable and cutoff tests.