, ITwAuditingw4thwEd—
TestwBank,wChapterw1
Chapter 1—Auditing and Internal Control
w w w w
TRUE/FALSE
1. Corporatewmanagementw(includingwthewCEO)wmustwcertifywmonthlywandwannuallywtheirworganization
’swinternalwcontrolswoverwfinancialwreporting.
ANS:w F PTS:w w 1
2. BothwthewSECwandwthewPCAOBwrequirewmanagementwtowusewthewCOBITwframeworkwforwassessingwinter
nalwcontrolwadequacy.
ANS:w F PTS:w w 1
3. BothwthewSECwandwthewPCAOBwrequirewmanagementwtowusewthewCOSOwframeworkwforwassessingwinter
nalwcontrolwadequacy.
ANS:w F PTS:w w 1
4. Awqualifiedwopinionwonwmanagement’swassessmentwofwinternalwcontrolswoverwthewfinancialwreportingwsyst
emwnecessitateswawqualifiedwopinionwonwthewfinancialwstatements?
ANS:w F PTS:w w 1
5. Thewsamewinternalwcontrolwobjectiveswapplywtowmanualwandwcomputer-basedwinformationwsystems.
ANS:w T PTS:w w 1
6. Thewexternalwauditorwiswresponsiblewforwestablishingwandwmaintainingwthewinternalwcontrolwsystem.
ANS:w F PTS:w w 1
7. Segregationwofwdutieswiswanwexamplewofwanwinternalwcontrolwprocedure.
ANS:w T PTS:w w 1
8. Preventivewcontrolswarewpassivewtechniqueswdesignedwtowreducewfraud.
ANS:w T PTS:w w 1
9. Aw keywmodifyingwassumptionwinwinternalwcontrolwiswthatwthewinternalwcontrolwsystemwiswthewresponsibility
wofwmanagement.
ANS:w T PTS:w w 1
©w2016wCengagewLearning®.w Maywnotwbewscanned,wcopiedworwduplicatedworwpostedwtowawpubliclywaccessiblewwebsite,winwwholeworwinwpart,wexceptwforwusew
aswpermittedwinwaw licensewdistributedwwithwawcertainwproductworwserviceworwotherwisewonwawpassword-protectedwwebsiteworwschool-
approvedwlearningwmanagementwsystemwforwclassroomwuse.
, ITwAuditingw4thwEd—
TestwBank,wChapterw1
10. WhilewthewSarbanes-OxleywActwprohibitswauditorswfromwprovidingwnon-
accountingwserviceswtowtheirwauditwclients,wtheywarewnotwprohibitedwfromwperformingwsuchwserviceswforw
non-auditwclientsworwprivatelywheldwcompanies.
ANS:w T PTS:w w 1
11. ThewSarbanes-OxleywActwrequireswthewauditwcommitteewtowhirewandwoverseewthewexternalwauditors.
ANS:w T PTS:w w 1
12. Sectionw404wrequireswthatwcorporatewmanagementw(includingwthewCEO)wcertifywtheirworganization’swinter
nalwcontrolswonwawquarterlywandwannualwbasis.
ANS:w F PTS:w w 1
13. Sectionw302wrequireswthewmanagementwofwpublicwcompanieswtowassesswandwformallywreportwonwt
heweffectivenesswofwtheirworganization’swinternalwcontrols.
ANS:w F PTS:w w 1
14. Applicationwcontrolswapplywtowawwidewrangewofwexposureswthatwthreatenwthewintegritywofwallwprogra
mswprocessedwwithinwthewcomputerwenvironment.
ANS:w F PTS:w w 1
15. Advisorywserviceswiswanwemergingwfieldwthatwgoeswbeyondwthewauditor’swtraditionalwattestationwfunction.
ANS:w T PTS:w w 1
16. AnwITwauditorwexpresseswanwopinionwonwthewfairnesswofwthewfinancialwstatements.
ANS:w F PTS:w w 1
17. Externalwauditingwiswanwindependentwappraisalwfunctionwestablishedwwithinwanworganizationwtowexaminewa
ndwevaluatewitswactivitieswaswawservicewtowtheworganization.
ANS:w F PTS:w w 1
18. Externalwauditorswcanwcooperatewwithwandwusewevidencewgatheredwbywinternalwauditwdepartmentswthatw
areworganizationallywindependentwandwthatwreportwtowthewAuditwCommitteewofwthewBoardwofwDirectors.
©w2016wCengagewLearning®.w Maywnotwbewscanned,wcopiedworwduplicatedworwpostedwtowawpubliclywaccessiblewwebsite,winwwholeworwinwpart,wexceptwforwusew
aswpermittedwinwaw licensewdistributedwwithwawcertainwproductworwserviceworwotherwisewonwawpassword-protectedwwebsiteworwschool-
approvedwlearningwmanagementwsystemwforwclassroomwuse.
, ITwAuditingw4thwEd—
TestwBank,wChapterw1
ANS:w T PTS:w w 1
19. Testswofwcontrolswdeterminewwhetherwthewdatabasewcontentswfairlywreflectwtheworganization'swtransactions.
ANS:w F PTS:w w 1
20. Auditwriskwiswthewprobabilitywthatwthewauditorwwillwrenderwanwunqualifiedwopinionwonwfinancialwstatementswt
hatwarewmateriallywmisstated.
ANS:w T PTS:w w 1
21. Awstrongwinternalwcontrolwsystemwwillwreducewthewamountwofwsubstantivewtestingwthatwmustwbewperformed.
ANS:w T PTS:w w 1
22. Substantivewtestingwtechniqueswprovidewinformationwaboutwthewaccuracywandwcompletenesswofw
anwapplication'swprocesses.
ANS:w F PTS:w w 1
MULTIPLEwCHOICE
1. Thewconceptwofwreasonablewassurancewsuggestswthat
a. thewcostwofwanwinternalwcontrolwshouldwbewlesswthanwthewbenefitwitwprovides
b. awwell-designedwsystemwofwinternalwcontrolswwillwdetectwallwfraudulentwactivity
c. thewobjectiveswachievedwbywanwinternalwcontrolwsystemwvarywdependingwonwthewda
tawprocessingwmethod
d. theweffectivenesswofwinternalwcontrolswiswawfunctionwofwthewindustrywenvironme
ntwANS:w A PTS:w 1
2. Whichwofwthewfollowingwiswnotwawlimitationwofwthewinternalwcontrolwsystem?
a. errorswarewmadewduewtowemployeewfatigue
b. fraudwoccurswbecausewofwcollusionwbetweenwtwowemployees
c. thewindustrywiswinherentlywrisky
d. managementwinstructswthewbookkeeperwtowmakewfraudulentwjournalwentri
eswANS:w C PTS:w 1
3. Thewmostwcost-effectivewtypewofwinternalwcontrolwis
a. preventivewcontrol
b. accountingwcontrol
©w2016wCengagewLearning®.w Maywnotwbewscanned,wcopiedworwduplicatedworwpostedwtowawpubliclywaccessiblewwebsite,winwwholeworwinwpart,wexceptwforwusew
aswpermittedwinwaw licensewdistributedwwithwawcertainwproductworwserviceworwotherwisewonwawpassword-protectedwwebsiteworwschool-
approvedwlearningwmanagementwsystemwforwclassroomwuse.
TestwBank,wChapterw1
Chapter 1—Auditing and Internal Control
w w w w
TRUE/FALSE
1. Corporatewmanagementw(includingwthewCEO)wmustwcertifywmonthlywandwannuallywtheirworganization
’swinternalwcontrolswoverwfinancialwreporting.
ANS:w F PTS:w w 1
2. BothwthewSECwandwthewPCAOBwrequirewmanagementwtowusewthewCOBITwframeworkwforwassessingwinter
nalwcontrolwadequacy.
ANS:w F PTS:w w 1
3. BothwthewSECwandwthewPCAOBwrequirewmanagementwtowusewthewCOSOwframeworkwforwassessingwinter
nalwcontrolwadequacy.
ANS:w F PTS:w w 1
4. Awqualifiedwopinionwonwmanagement’swassessmentwofwinternalwcontrolswoverwthewfinancialwreportingwsyst
emwnecessitateswawqualifiedwopinionwonwthewfinancialwstatements?
ANS:w F PTS:w w 1
5. Thewsamewinternalwcontrolwobjectiveswapplywtowmanualwandwcomputer-basedwinformationwsystems.
ANS:w T PTS:w w 1
6. Thewexternalwauditorwiswresponsiblewforwestablishingwandwmaintainingwthewinternalwcontrolwsystem.
ANS:w F PTS:w w 1
7. Segregationwofwdutieswiswanwexamplewofwanwinternalwcontrolwprocedure.
ANS:w T PTS:w w 1
8. Preventivewcontrolswarewpassivewtechniqueswdesignedwtowreducewfraud.
ANS:w T PTS:w w 1
9. Aw keywmodifyingwassumptionwinwinternalwcontrolwiswthatwthewinternalwcontrolwsystemwiswthewresponsibility
wofwmanagement.
ANS:w T PTS:w w 1
©w2016wCengagewLearning®.w Maywnotwbewscanned,wcopiedworwduplicatedworwpostedwtowawpubliclywaccessiblewwebsite,winwwholeworwinwpart,wexceptwforwusew
aswpermittedwinwaw licensewdistributedwwithwawcertainwproductworwserviceworwotherwisewonwawpassword-protectedwwebsiteworwschool-
approvedwlearningwmanagementwsystemwforwclassroomwuse.
, ITwAuditingw4thwEd—
TestwBank,wChapterw1
10. WhilewthewSarbanes-OxleywActwprohibitswauditorswfromwprovidingwnon-
accountingwserviceswtowtheirwauditwclients,wtheywarewnotwprohibitedwfromwperformingwsuchwserviceswforw
non-auditwclientsworwprivatelywheldwcompanies.
ANS:w T PTS:w w 1
11. ThewSarbanes-OxleywActwrequireswthewauditwcommitteewtowhirewandwoverseewthewexternalwauditors.
ANS:w T PTS:w w 1
12. Sectionw404wrequireswthatwcorporatewmanagementw(includingwthewCEO)wcertifywtheirworganization’swinter
nalwcontrolswonwawquarterlywandwannualwbasis.
ANS:w F PTS:w w 1
13. Sectionw302wrequireswthewmanagementwofwpublicwcompanieswtowassesswandwformallywreportwonwt
heweffectivenesswofwtheirworganization’swinternalwcontrols.
ANS:w F PTS:w w 1
14. Applicationwcontrolswapplywtowawwidewrangewofwexposureswthatwthreatenwthewintegritywofwallwprogra
mswprocessedwwithinwthewcomputerwenvironment.
ANS:w F PTS:w w 1
15. Advisorywserviceswiswanwemergingwfieldwthatwgoeswbeyondwthewauditor’swtraditionalwattestationwfunction.
ANS:w T PTS:w w 1
16. AnwITwauditorwexpresseswanwopinionwonwthewfairnesswofwthewfinancialwstatements.
ANS:w F PTS:w w 1
17. Externalwauditingwiswanwindependentwappraisalwfunctionwestablishedwwithinwanworganizationwtowexaminewa
ndwevaluatewitswactivitieswaswawservicewtowtheworganization.
ANS:w F PTS:w w 1
18. Externalwauditorswcanwcooperatewwithwandwusewevidencewgatheredwbywinternalwauditwdepartmentswthatw
areworganizationallywindependentwandwthatwreportwtowthewAuditwCommitteewofwthewBoardwofwDirectors.
©w2016wCengagewLearning®.w Maywnotwbewscanned,wcopiedworwduplicatedworwpostedwtowawpubliclywaccessiblewwebsite,winwwholeworwinwpart,wexceptwforwusew
aswpermittedwinwaw licensewdistributedwwithwawcertainwproductworwserviceworwotherwisewonwawpassword-protectedwwebsiteworwschool-
approvedwlearningwmanagementwsystemwforwclassroomwuse.
, ITwAuditingw4thwEd—
TestwBank,wChapterw1
ANS:w T PTS:w w 1
19. Testswofwcontrolswdeterminewwhetherwthewdatabasewcontentswfairlywreflectwtheworganization'swtransactions.
ANS:w F PTS:w w 1
20. Auditwriskwiswthewprobabilitywthatwthewauditorwwillwrenderwanwunqualifiedwopinionwonwfinancialwstatementswt
hatwarewmateriallywmisstated.
ANS:w T PTS:w w 1
21. Awstrongwinternalwcontrolwsystemwwillwreducewthewamountwofwsubstantivewtestingwthatwmustwbewperformed.
ANS:w T PTS:w w 1
22. Substantivewtestingwtechniqueswprovidewinformationwaboutwthewaccuracywandwcompletenesswofw
anwapplication'swprocesses.
ANS:w F PTS:w w 1
MULTIPLEwCHOICE
1. Thewconceptwofwreasonablewassurancewsuggestswthat
a. thewcostwofwanwinternalwcontrolwshouldwbewlesswthanwthewbenefitwitwprovides
b. awwell-designedwsystemwofwinternalwcontrolswwillwdetectwallwfraudulentwactivity
c. thewobjectiveswachievedwbywanwinternalwcontrolwsystemwvarywdependingwonwthewda
tawprocessingwmethod
d. theweffectivenesswofwinternalwcontrolswiswawfunctionwofwthewindustrywenvironme
ntwANS:w A PTS:w 1
2. Whichwofwthewfollowingwiswnotwawlimitationwofwthewinternalwcontrolwsystem?
a. errorswarewmadewduewtowemployeewfatigue
b. fraudwoccurswbecausewofwcollusionwbetweenwtwowemployees
c. thewindustrywiswinherentlywrisky
d. managementwinstructswthewbookkeeperwtowmakewfraudulentwjournalwentri
eswANS:w C PTS:w 1
3. Thewmostwcost-effectivewtypewofwinternalwcontrolwis
a. preventivewcontrol
b. accountingwcontrol
©w2016wCengagewLearning®.w Maywnotwbewscanned,wcopiedworwduplicatedworwpostedwtowawpubliclywaccessiblewwebsite,winwwholeworwinwpart,wexceptwforwusew
aswpermittedwinwaw licensewdistributedwwithwawcertainwproductworwserviceworwotherwisewonwawpassword-protectedwwebsiteworwschool-
approvedwlearningwmanagementwsystemwforwclassroomwuse.
