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Study and Evaluation of Internal Control 2

The document discusses internal controls, assessing control risk, and testing internal controls. It provides examples of: - Methods used to document internal controls like narratives, flowcharts, and questionnaires - Procedures an auditor may perform when testing controls, like inspection and reconciliation - Reasons an auditor may assess control risk as high, such as an ineffective internal control system - How an auditor may modify the audit program when material weaknesses are identified, such as increasing tests of controls

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Rose Medina Baronda
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159 views

Study and Evaluation of Internal Control 2

The document discusses internal controls, assessing control risk, and testing internal controls. It provides examples of: - Methods used to document internal controls like narratives, flowcharts, and questionnaires - Procedures an auditor may perform when testing controls, like inspection and reconciliation - Reasons an auditor may assess control risk as high, such as an ineffective internal control system - How an auditor may modify the audit program when material weaknesses are identified, such as increasing tests of controls

Uploaded by

Rose Medina Baronda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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21.

Narratives, flowcharts and internal control questionnaires are three commonly


used  methods of 
Documenting the study of internal controls. 
Testing the internal control structure. 
Designing the audit manual and procedures. 
Documenting the weakness of internal controls. 
22.After obtaining a sufficient understanding of internal control, the
auditor Assesses the need to apply GAAS. 
Determine the preliminary assessment control risk. 
Assesses the detection risk to determine the acceptable level of
inherent risk. Determine the assessed level of detection risk and
inherent risk. 
23.After obtaining an understanding of internal control, an auditor assessed control
risk as  high. Which of the following are possible reasons for this preliminary
assessment? The entity’s internal control system is not effective. 
Evaluating the effectiveness of the entity’s internal control system would not be
sufficient.
The internal control system may be effective. 
Both A and B. 
24.When the auditor identifies an area of the accounting system with missing controls
i.e. a  material weakness, this would lead to a modification of the audit program in
that area that  would 
Increase the amount of tests of controls. 
Increase the reliance on tests of controls. 
Cause the issuance of a qualified or adverse opinion. 
Eliminate the need for a test of controls. 
25.When an auditor increases the assessed level of control risk because certain
control  activities were determined to be ineffective, the auditor would most likely
increases the Extent of tests of controls 
Level of detection risk. 
Extent of tests of details. 
Level of inherent risk. 
26.Which of the following procedures most likely would be included as part of the
auditor’s  tests of controls? 
Inspection 
Reconciliation 
Confirmation 
Analytical procedures 
27.Tests of control are used to test whether controls are 
Operating effectively. 
Place in operation or implemented. 
Properly incorporated in the financial statements. 
Properly documented by the client. 
28.Which of the following is least likely to be evidence the auditor examines to
determine  whether operations are in compliance with the internal control
structure? Records documenting usage of IT programs. 
Confirmation of accounts receivable. 
Cancelled supporting documents. 
Signatures on authorization forms. 
29.Tests of controls may include the following, EXCEPT 
Reperformance of internal control procedures. 
Inquire about, and observation of, internal controls which leave no audit
trail. Analytical procedures involving comparison of operating expenses
with budgeted  amount. 
Inspection of documentary support for transactions evidencing authorization.
30.After considering a client’s internal control structure, an auditor has concluded
that it is  well designed and is functioning as intended. Under these
circumstances the auditor  would most likely 
Perform tests of control to the extent outlined in the audit program. 
Determine the control procedures that should prevent or detect errors and
irregularities.
Not increase the extend of predetermined substantive tests. 
Determine whether transactions are recorded to permit preparation of
financial  statements in conformity with generally accepted accounting
principles.
31.Which of the following circumstances most likely would cause an auditor to
consider  whether material misstatements exist in an entity’s financial
statements?
Supporting records that should be readily available are frequently not
produced when  requested. 
Reportable conditions previously communicated have not been
corrected. Clerical errors are listed on a monthly computer-generated
exception report. Differences are discovered during the client’s
annual physical inventory count. 

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