Auditing and Assurance Training Internal Controls and Risk Assessment 2

Question 1

A 'material weakness' in internal control is defined as a deficiency (or combination of deficiencies) that results in a:

Accepted Answer

Reasonable possibility that a material misstatement will not be prevented or detected

Answer

Minor clerical error

Answer

Single transaction being misstated

Answer

Violation of GAAP in one account

Question 2

Under PCAOB standards, when must management include a report on internal control over financial reporting (ICFR)?

Accepted Answer

Annually as part of the Form 10-K for accelerated filers

Answer

Only when asked by shareholders

Answer

Only after a restatement

Answer

Every quarter in Form 10-Q filings

Question 3

Which risk assessment procedure involves the auditor directly tracing a transaction from its initiation through to recording in the financial statements?

Accepted Answer

Walkthrough

Answer

Analytical procedure

Answer

Confirmation

Answer

Recalculation

Question 4

Control risk represents the risk that:

Accepted Answer

A misstatement will not be prevented or detected by internal controls

Answer

The auditor will issue a wrong opinion

Answer

The auditor's sample is not representative

Answer

Management will override controls

Question 5

Segregation of duties is a key preventive control. Which combination of duties should be separated to reduce fraud risk?

Accepted Answer

Authorization, custody, and recording

Answer

Budgeting and forecasting

Answer

Hiring and payroll input only

Answer

Purchasing and invoicing approval

Question 6

IT general controls (ITGCs) are important because weaknesses in them can:

Accepted Answer

Undermine the reliability of all automated application controls

Answer

Only affect payroll processing

Answer

Increase the audit fee automatically

Answer

Eliminate the need for substantive testing