CGA Auditing & Assurance 3

Question 1

Which of the following is an example of a preventive control in an internal control system?

Accepted Answer

Segregation of duties

Answer

Segregation of duties prevents errors or fraud from occurring by ensuring no single individual controls all aspects of a transaction.

Question 2

An engagement letter for an audit should include all of the following EXCEPT:

Accepted Answer

A guarantee that fraud will be detected

Answer

Auditors cannot guarantee fraud detection; the engagement letter sets out responsibilities and scope but makes no such guarantee.

Question 3

During an audit, an auditor identifies a significant deficiency in internal controls. To whom must this be communicated?

Accepted Answer

Those charged with governance (e.g., the audit committee)

Answer

Significant deficiencies and material weaknesses must be communicated in writing to management and those charged with governance.

Question 4

Which analytical procedure would best identify potential revenue overstatement?

Accepted Answer

Comparing current-year gross margin ratio to prior years and industry benchmarks

Answer

Comparing gross margin ratios can reveal unexplained improvements that may indicate inflated revenue or understated cost of goods sold.

Question 5

A company uses electronic data interchange (EDI) for all purchases. Which internal control is most critical in this environment?

Accepted Answer

Application controls that validate transaction completeness and accuracy

Answer

In an EDI environment, automated application controls replace manual controls to ensure transactions are complete, accurate, and authorized.

(CGA) Certified General Accountant Practice Test