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

A material weakness indicates there is a reasonable possibility that a material misstatement in the financial statements could go undetected.

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

Section 404 of the Sarbanes-Oxley Act requires management of accelerated filers to assess and report on ICFR annually in the Form 10-K.

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

A walkthrough follows a single transaction end-to-end to help the auditor understand the flow of transactions and confirm controls are designed as documented.

Question 4

Control risk represents the risk that:

Accepted Answer

A misstatement will not be prevented or detected by internal controls

Answer

Control risk is the probability that a material misstatement could occur and not be caught or corrected by the entity's internal control system.

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

Separating authorization, custody of assets, and recording of transactions reduces the opportunity for any one person to commit and conceal a fraud.

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Practice Test

Auditing and Assurance Training Internal Controls and Risk Assessment 2