Accounting Online Program Auditing and Internal Controls 2 — Questions and Answers
Question 1: What is the meaning of an 'unqualified' (clean) audit opinion?
- The auditors found significant errors
- The financial statements are fairly presented in all material respects (Correct answer)
- The audit was incomplete
- Management refused to provide information
Correct answer: The financial statements are fairly presented in all material respects
An unqualified (or unmodified) opinion means the auditors found the financial statements to be presented fairly in accordance with the applicable financial reporting framework.
Question 2: Which of the following is an example of a preventive internal control?
- Bank reconciliation
- Monthly inventory counts
- Password requirements on accounting software (Correct answer)
- Internal audit review of transactions
Correct answer: Password requirements on accounting software
Preventive controls, like password requirements, are designed to deter or prevent errors and irregularities before they occur, unlike detective controls that identify them after the fact.
Question 3: Materiality in auditing is best defined as:
- The total value of assets audited
- The threshold at which a misstatement could influence the economic decisions of users (Correct answer)
- The cost of the audit engagement
- The number of transactions tested
Correct answer: The threshold at which a misstatement could influence the economic decisions of users
Materiality is the magnitude of a misstatement or omission that, individually or in aggregate, could reasonably be expected to influence the decisions of financial statement users.
Question 4: What is a 'walkthrough' in the context of auditing internal controls?
- A physical inspection of a company's facilities
- Tracing a single transaction from initiation through recording to confirm controls operate as described (Correct answer)
- An analytical procedure comparing budgeted to actual results
- The process of reconciling accounts at year-end
Correct answer: Tracing a single transaction from initiation through recording to confirm controls operate as described
A walkthrough involves following a single transaction through every step of the accounting system to verify that described controls are actually in place and functioning.
Question 5: Which type of audit focuses on the efficiency and effectiveness of an organization's operations?
- Financial statement audit
- Compliance audit
- Forensic audit
- Operational (performance) audit (Correct answer)
Correct answer: Operational (performance) audit
An operational audit evaluates whether an organization's operations are being conducted efficiently and effectively in achieving management's objectives.
Question 6: The COSO framework identifies how many components of internal control?
- 3
- 4
- 5 (Correct answer)
- 7
Correct answer: 5
The COSO Internal Control — Integrated Framework identifies five components: Control Environment, Risk Assessment, Control Activities, Information & Communication, and Monitoring.
Accounting Online Program Auditing and Internal Controls 2
What is the meaning of an 'unqualified' (clean) audit opinion?