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Student: ___________________________________________________________________________
1. A company with a strong control environment demonstrates a culture of high integrity and ethics.
True False
2. The requirement to report on internal control placed on public companies resulted from one particular type of
internal control breakdown: front line employees of some major public companies overrode their control
systems and issued misleading financial statements.
True False
3. During the course of the audit, the auditor should continually gather and update information on business risk,
including the identification of any fraud risk factors noted during preliminary audit planning.
True False
4. The auditor should not attempt to analyze potential management motivations to misstate account balances
since auditor is an accounting expert and not expected to perform behavioral assessments.
True False
5. Substantive procedures performed by the auditor will include procedures to address fraud risks.
True False
6. Recent research by COSO reinforces the concept that the control environment is not a very important factor
associated with fraud
True False
7. A material weakness in internal control is a deficiency in the design or operation of the control that adversely
affects the companys ability to initiate, record, process or report external financial data reliably in accordance
with GAAP.
True False
8. The concept of reasonable assurance regarding controls recognizes that the benefits of internal controls
should not exceed the cost.
True False
9. The auditor is required to report material weaknesses in internal control to the audit committee.
True False
10. In an integrated audit both management and the auditor are required to report on the fairness of the internal
control of the company.
True False
11. The purpose of tests of controls is to determine that account balances are properly stated.
True False
12. The purpose of the auditor consideration of the strength of internal controls is to determine the nature, extent
and timing of substantive testing.
True False
13. Pervasive controls are those that affect the processing of specific computer applications of the client.
True False
14. In an integrated audit the auditor is responsible to only form an opinion on the fairness of the financial
statements.
True False
15. If the auditor finds material weaknesses in the internal controls of the client a qualified report would be
issued.
True False
16. The auditors report on the internal controls and the financial statements of the client are required to be
reported in the same report.
True False
17. The major changes in guidance since the original issuance of AS 2 include encouragement to both
management and auditors to implement a top down, risk-based approach.
True False
18. Internal control reporting must be based on evidence of both the design and the operation of internal
controls.
True False
19. In an integrated audit the auditor is required to issue two separate reports. One on the fairness of the internal
controls and a second on the fairness of the financial statements.
True False
20. In an integrated audit the auditor is required to issue a report expressing an opinion on managements
assessment of the effectiveness of controls.
True False
21. If managements report on internal control indicates one or more material weaknesses, the auditor would
express an adverse opinion on the internal controls.
True False
22. If managements report on internal control indicates a material weakness, the auditor would express a
qualified opinion on the internal controls.
True False
23. The auditor is responsible to understand the controls of the client and to test all of its controls in the process
of evaluating the strength of the internal control system.
True False
24. Controls of the client that the auditor expects to depend upon in reducing substantive testing must be tested.
True False
25. A risk-based approach to an integrated audit requires auditors to consider the materiality of account
balances and processes along with the risks that the account balance may be misstated
True False
26. Controls for all assertions need not be tested if the auditor believes that a misstatement related to a particular
assertion would not be material.
True False
27. The direct tests of account balances are determined, in large part, by the specific nature of the identified
control deficiencies.
True False
28. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial
reporting that is more severe than a material weakness.
True False
29. In evaluating the strength of internal control in determining the nature, timing and extent of substantive
audit evidence to collect the auditor must form their own independent assessment. Audit evidence cannot be
reduced based upon the work of the internal auditor.
True False
30. In evaluating the strength of internal control in determining the nature, timing and extent of substantive
audit evidence to collect the auditor must form their own independent assessment. Audit evidence can be
reduced based upon the effectiveness of managements monitoring controls.
True False
31. The assessment of internal control is at the end of the clients reporting period. There is often an opportunity
to correct a deficiency before the end of the year if it is identified early enough.
True False
32. If the auditor finds material weaknesses in the internal controls of the client an adverse report would be
issued.
True False
33. The size of the account (materiality) influences, but does not totally dictate, whether substantive testing
should be performed.`
True False
34. To some extent, the external auditor can rely on some of the companys evaluation and/or testing of
controls, particularly work performed by a competent and independent internal audit function.
True False
35. The external auditor can never rely to any extent on some of the companys evaluation and/or testing of
controls, even when performed by a competent and independent internal audit function.
True False
36. No matter how low control risk is assessed, some substantive testing of account balances must be conducted
for material account balances.
True False
37. Under AS 5, the auditors objective in an audit of internal control over financial reporting is to express an
opinion on the effectiveness of the companys internal control over financial reporting.
True False
38. In an integrated audit the auditor conducts their audit of the internal controls of the company in accordance
with the standards of COSO, which requires reasonable assurance of maintenance in material respects.
True False
39. In an integrated audit an unqualified opinion on the internal controls over financial reporting can be issued
by the auditor if no misstatements are found in the financial statement audit.
True False
40. Management is responsible to document the COSO control elements, especially the control environment,
risk analysis, and monitoring.
True False
41. The financial competencies needed by an organization are directly correlated with the complexity of
transactions in which the company engages and the size of the company.
True False
42. Once a company establishes that it has effective internal control over processes, monitoring can be effective
by assuring that any changes made to the processes are fully documented and tested and that controls have not
deteriorated.
True False
43. Regardless of the level of assessed control risk, the auditor must conduct some substantive procedures for
material account balances.
True False
44. In the risk-based audit approach the control environment serves as the first line of defense in mitigating the
risks that a company has to manage.
True False
45. Managements evaluation of internal controls often presents opportunities to improve both the quality of
controls and the efficiency of processing.
True False
46. A company with a strong control environment demonstrates which of the following:
A. a culture of high integrity and ethics.
B. a commitment to financial reporting competencies.
C. an independent, active, and knowledgeable audit committee.
D. all of the above.
47. Regardless of the level of assessed control risk, the auditor must conduct some substantive procedures for
material account balances. These procedures may include which of the following.
A. input from the audit teams brainstorming analysis regarding potential for fraud.
B. the size of the account balance.
C. how IT affects the company's flow of transactions.
D. all of the above.
48. Research has found that the most fraudulent financial reporting, such as misleading reporting was
perpetrated by which of the following.
A. lower-level employees.
B. external auditors.
C. internal auditors.
D. senior management.
50. For the auditor to assess control risk for account balances at less than the maximum
A. no significant weaknesses must have occurred.
B. the internal auditor must test and evaluate some of the controls.
C. the external auditor must test and evaluate some of the controls.
D. management must test and evaluate some of the controls.
51. Under what circumstance is it appropriate for the auditor to rely on the work of an internal auditor?
A. It is never acceptable for the external auditor to rely upon the work of the internal auditor.
B. The external auditor may relay on certain of the work of the internal auditor after making a comprehensive
assessment of the auditor and his/her work.
C. The external auditor may rely on the work of the internal auditor if he/she is also a CPA.
D. There is no restriction in relying upon the work of internal auditors.
53. An adverse report on internal controls is rendered when the auditor finds
A. a significant weakness in the internal controls of the client.
B. a material weakness in the internal controls of the client.
C. a deficiency in operation of the internal controls of the client.
D. all of the above would result in an adverse opinion.
54. The amount of direct testing to be performed by the auditor is directly related to
A. audit risk
B. business risk.
C. subjectivity of account balances.
D. both B and C.
55. The amount of direct testing to be performed by the auditor is inversely related to
A. audit risk.
B. enterprise risk.
C. subjectivity of accounting process.
D. materiality of account balance.
56. If the auditor assesses control risk dealing with account balances as being weak, the effect on residual risk is
to
A. reduce residual risk.
B. increase residual risk.
C. no effect on residual risk.
D. either A or B depending upon presence or absence of significant deficiencies.
57. In evaluating the extent to which the external auditor can rely on the work of the internal auditor, which of
the following factors would the external auditor consider?
A. The independence of the function from management.
B. The design and comprehensiveness of the internal audit testing approach.
C. The documentation of the internal audit testing.
D. All would be considered.
58. If the auditor finds a material weakness in the controls of the client, it represents a deficiency in the design
or operation of a control
A. that adversely affects the companys ability to initiate, record, process, or report external financial data
reliably in accordance with GAAP.
B. that negatively affects the companys ability to initiate, record, process, or report external financial data
reliably in accordance with GAAP.
C. that results in a remote possibility that a material misstatement of the annual or interim financial statements
will not be prevented or detected.
D. that results in a reasonable possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
60. When would the auditor issue an unqualified opinion on the internal controls of a client?
A. No material weaknesses in internal controls are found.
B. No significant deficiencies in internal controls are found.
C. No errors are found in the account balances of the client.
D. Either A or B.
62. In examining controls for transactions and events, which of the following assertions would be included:
A. occurrence.
B. completeness.
C. valuation.
D. all are included.
63. Which of the following is not correct about the performance of tests of controls?
A. Tests of controls must be performed for every account.
B. Some tests of controls must be performed to rely upon controls to reduce substantive testing.
C. The work of the internal auditor can be used to reduce substantive testing.
D. All of the above are correct.
64. In evaluating residual risk of account balances, tests of controls by the auditor involves the assessment of
A. the design of controls.
B. the operation of controls.
C. the strength of the control environment.
D. all of the above
65. In assessing internal controls the auditor is suppose to apply the concept of reasonable assurance, which
indicates that
A. there should be a clear separation of duties between personnel who authorize, record, and hold assets.
B. the costs of a control should not exceed its benefits.
C. testing of the controls should provide assurance that they work most of the time.
D. testing of the controls should provide reasonable assurance that they are working properly.
66. Which of the following statements about internal control is not correct?
A. The costs of the control should not exceed the benefits.
B. The auditors assessment of detection risk is inversely related to the assessment of control risk.
C. Stronger internal controls result in an increase in the number of required substantive audit procedures.
D. Management is responsible for the maintenance of internal control.
67. When assessing the client which of the following factors is considered pervasive and creates both an attitude
and culture that affects the clients reporting system, the process of recording transactions, and the process of
making estimates and adjustments.
A. The control environment.
B. Audit testing of processes and controls.
C. Design and operation of controls.
D. Inherent and control risk.
69. If the auditors assessment of audit risk is low (e.g., 1% rather than 5%), what is the effect on the amount of
direct testing performed by the auditor?
A. Increase in direct testing.
B. Decrease in direct testing
C. No change in direct testing.
D. Direct testing is not needed.
70. If the auditors assessment of an account balance is material, what is the effect on the amount of direct
testing performed by the auditor?
A. Increase in direct testing.
B. Decrease in direct testing
C. No change in direct testing.
D. Direct testing is not needed.
71. If the auditors assessment of an internal control is that it is effective, what is the effect on the amount of
direct testing performed by the auditor?
A. Increase in direct testing.
B. decrease in direct testing
C. No change in direct testing.
D. Direct testing is not needed.
72. Large public company audited financial statements are required to be accompanied by:
A. managements report on internal control over financial reporting.
B. an external audit report on the financial statements and the effectiveness of internal control over financial
reporting.
C. the internal auditors report on the financial statements.
D. both A and B.
E. all of the above.
73. Control deficiencies result when there are deficiencies in the design or operation of controls and may result
in
A. reportable deficiencies.
B. significant deficiencies.
C. material weaknesses.
D. either B or C.
E. all of the above.
74. In an integrated audit the auditor must test the controls of all material processes of the client unless
A. substantive testing would be more effective and efficient.
B. the controls were in place last year.
C. there have been changes to the controls during the year.
D. the design of the control would not prevent material misstatements.
75. Even though there was a material weakness in internal control, management of the company issues an
unqualified report. What types of report(s) would the auditor issue?
A. An adverse opinion on managements assessment of internal control and in their report on internal control.
B. An unqualified opinion on managements assessment of internal control and an adverse opinion in their
report on internal control.
C. An unqualified opinion on managements assessment of internal control and in their report on internal
control.
D. An adverse opinion on managements assessment of internal control and an unqualified report on internal
control.
76. In an integrated audit the auditors report on internal control does not require the statement that
A. the audit was conducted in accordance with AICPA auditing standards.
B. management is responsible for maintaining effective internal control.
C. used COSOs internal control framework.
D. a reasonable basis exists for their opinion.
77. Which of the following factor(s) is considered by the auditor in evaluating the potential for residual risk
remaining in an account balance or class of transactions?
A. Sources of potential misstatement.
B. Extent of potential misstatement.
C. Type of potential misstatement.
D. All of the above should be considered.
78. Which of the following is not one of the phases in planning an integrated audit?
A. identifying and assessing business risk.
B. documenting all controls.
C. assessing fraud risk.
D. determining the most efficient manner in which to conduct an integrated audit.
79. Ultimately, the starting point of the integrated audit should be to understand all of the following except
A. the risks that the business faces in meeting its objectives, with a focus on the objective of accurate financial
reporting
B. the incentives that may motivate management or other employees to misstate the financial statements
C. the risks inherent in important business processes
D. the results of direct account substantive testing
80. The auditor could assess control risk for an account at the maximum when
A. immaterial control deficiencies exists in the account.
B. significant control deficiencies exists in an account.
C. material weaknesses exists in an account.
D. both A and B.
81. In an integrated audit, the amount of direct testing of account balances is inversely related to
A. subjectivity of estimates.
B. riskiness of the account.
C. effectiveness of internal control.
D. materiality of the account.
82. The types of opinion on internal control that may be issued are
A. Unqualified.
B. Qualified.
C. Adverse.
D. Either A or C.
E. All of the above.
84. The probability that an account balance might be misstated after processes are complete and internal
controls have been applied is
A. residual risk.
B. business risk.
C. audit risk.
D. control risk.
1. A company with a strong control environment demonstrates a culture of high integrity and ethics.
TRUE
2. The requirement to report on internal control placed on public companies resulted from one particular type of
internal control breakdown: front line employees of some major public companies overrode their control
systems and issued misleading financial statements.
FALSE
3. During the course of the audit, the auditor should continually gather and update information on business risk,
including the identification of any fraud risk factors noted during preliminary audit planning.
TRUE
4. The auditor should not attempt to analyze potential management motivations to misstate account balances
since auditor is an accounting expert and not expected to perform behavioral assessments.
FALSE
5. Substantive procedures performed by the auditor will include procedures to address fraud risks.
TRUE
6. Recent research by COSO reinforces the concept that the control environment is not a very important factor
associated with fraud
FALSE
7. A material weakness in internal control is a deficiency in the design or operation of the control that adversely
affects the companys ability to initiate, record, process or report external financial data reliably in accordance
with GAAP.
FALSE
8. The concept of reasonable assurance regarding controls recognizes that the benefits of internal controls
should not exceed the cost.
FALSE
9. The auditor is required to report material weaknesses in internal control to the audit committee.
TRUE
10. In an integrated audit both management and the auditor are required to report on the fairness of the internal
control of the company.
TRUE
11. The purpose of tests of controls is to determine that account balances are properly stated.
FALSE
12. The purpose of the auditor consideration of the strength of internal controls is to determine the nature, extent
and timing of substantive testing.
TRUE
13. Pervasive controls are those that affect the processing of specific computer applications of the client.
FALSE
14. In an integrated audit the auditor is responsible to only form an opinion on the fairness of the financial
statements.
FALSE
15. If the auditor finds material weaknesses in the internal controls of the client a qualified report would be
issued.
FALSE
16. The auditors report on the internal controls and the financial statements of the client are required to be
reported in the same report.
FALSE
17. The major changes in guidance since the original issuance of AS 2 include encouragement to both
management and auditors to implement a top down, risk-based approach.
TRUE
18. Internal control reporting must be based on evidence of both the design and the operation of internal
controls.
TRUE
19. In an integrated audit the auditor is required to issue two separate reports. One on the fairness of the internal
controls and a second on the fairness of the financial statements.
FALSE
20. In an integrated audit the auditor is required to issue a report expressing an opinion on managements
assessment of the effectiveness of controls.
TRUE
21. If managements report on internal control indicates one or more material weaknesses, the auditor would
express an adverse opinion on the internal controls.
TRUE
22. If managements report on internal control indicates a material weakness, the auditor would express a
qualified opinion on the internal controls.
FALSE
23. The auditor is responsible to understand the controls of the client and to test all of its controls in the process
of evaluating the strength of the internal control system.
FALSE
24. Controls of the client that the auditor expects to depend upon in reducing substantive testing must be tested.
TRUE
25. A risk-based approach to an integrated audit requires auditors to consider the materiality of account
balances and processes along with the risks that the account balance may be misstated
TRUE
26. Controls for all assertions need not be tested if the auditor believes that a misstatement related to a particular
assertion would not be material.
TRUE
27. The direct tests of account balances are determined, in large part, by the specific nature of the identified
control deficiencies.
TRUE
28. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial
reporting that is more severe than a material weakness.
FALSE
29. In evaluating the strength of internal control in determining the nature, timing and extent of substantive
audit evidence to collect the auditor must form their own independent assessment. Audit evidence cannot be
reduced based upon the work of the internal auditor.
FALSE
30. In evaluating the strength of internal control in determining the nature, timing and extent of substantive
audit evidence to collect the auditor must form their own independent assessment. Audit evidence can be
reduced based upon the effectiveness of managements monitoring controls.
TRUE
31. The assessment of internal control is at the end of the clients reporting period. There is often an opportunity
to correct a deficiency before the end of the year if it is identified early enough.
TRUE
32. If the auditor finds material weaknesses in the internal controls of the client an adverse report would be
issued.
TRUE
33. The size of the account (materiality) influences, but does not totally dictate, whether substantive testing
should be performed.`
TRUE
34. To some extent, the external auditor can rely on some of the companys evaluation and/or testing of
controls, particularly work performed by a competent and independent internal audit function.
TRUE
35. The external auditor can never rely to any extent on some of the companys evaluation and/or testing of
controls, even when performed by a competent and independent internal audit function.
FALSE
36. No matter how low control risk is assessed, some substantive testing of account balances must be conducted
for material account balances.
TRUE
37. Under AS 5, the auditors objective in an audit of internal control over financial reporting is to express an
opinion on the effectiveness of the companys internal control over financial reporting.
TRUE
38. In an integrated audit the auditor conducts their audit of the internal controls of the company in accordance
with the standards of COSO, which requires reasonable assurance of maintenance in material respects.
FALSE
39. In an integrated audit an unqualified opinion on the internal controls over financial reporting can be issued
by the auditor if no misstatements are found in the financial statement audit.
FALSE
40. Management is responsible to document the COSO control elements, especially the control environment,
risk analysis, and monitoring.
TRUE
41. The financial competencies needed by an organization are directly correlated with the complexity of
transactions in which the company engages and the size of the company.
TRUE
42. Once a company establishes that it has effective internal control over processes, monitoring can be effective
by assuring that any changes made to the processes are fully documented and tested and that controls have not
deteriorated.
TRUE
43. Regardless of the level of assessed control risk, the auditor must conduct some substantive procedures for
material account balances.
TRUE
44. In the risk-based audit approach the control environment serves as the first line of defense in mitigating the
risks that a company has to manage.
TRUE
45. Managements evaluation of internal controls often presents opportunities to improve both the quality of
controls and the efficiency of processing.
TRUE
46. A company with a strong control environment demonstrates which of the following:
A. a culture of high integrity and ethics.
B. a commitment to financial reporting competencies.
C. an independent, active, and knowledgeable audit committee.
D. all of the above.
47. Regardless of the level of assessed control risk, the auditor must conduct some substantive procedures for
material account balances. These procedures may include which of the following.
A. input from the audit teams brainstorming analysis regarding potential for fraud.
B. the size of the account balance.
C. how IT affects the company's flow of transactions.
D. all of the above.
48. Research has found that the most fraudulent financial reporting, such as misleading reporting was
perpetrated by which of the following.
A. lower-level employees.
B. external auditors.
C. internal auditors.
D. senior management.
50. For the auditor to assess control risk for account balances at less than the maximum
A. no significant weaknesses must have occurred.
B. the internal auditor must test and evaluate some of the controls.
C. the external auditor must test and evaluate some of the controls.
D. management must test and evaluate some of the controls.
51. Under what circumstance is it appropriate for the auditor to rely on the work of an internal auditor?
A. It is never acceptable for the external auditor to rely upon the work of the internal auditor.
B. The external auditor may relay on certain of the work of the internal auditor after making a comprehensive
assessment of the auditor and his/her work.
C. The external auditor may rely on the work of the internal auditor if he/she is also a CPA.
D. There is no restriction in relying upon the work of internal auditors.
53. An adverse report on internal controls is rendered when the auditor finds
A. a significant weakness in the internal controls of the client.
B. a material weakness in the internal controls of the client.
C. a deficiency in operation of the internal controls of the client.
D. all of the above would result in an adverse opinion.
54. The amount of direct testing to be performed by the auditor is directly related to
A. audit risk
B. business risk.
C. subjectivity of account balances.
D. both B and C.
55. The amount of direct testing to be performed by the auditor is inversely related to
A. audit risk.
B. enterprise risk.
C. subjectivity of accounting process.
D. materiality of account balance.
56. If the auditor assesses control risk dealing with account balances as being weak, the effect on residual risk is
to
A. reduce residual risk.
B. increase residual risk.
C. no effect on residual risk.
D. either A or B depending upon presence or absence of significant deficiencies.
57. In evaluating the extent to which the external auditor can rely on the work of the internal auditor, which of
the following factors would the external auditor consider?
A. The independence of the function from management.
B. The design and comprehensiveness of the internal audit testing approach.
C. The documentation of the internal audit testing.
D. All would be considered.
58. If the auditor finds a material weakness in the controls of the client, it represents a deficiency in the design
or operation of a control
A. that adversely affects the companys ability to initiate, record, process, or report external financial data
reliably in accordance with GAAP.
B. that negatively affects the companys ability to initiate, record, process, or report external financial data
reliably in accordance with GAAP.
C. that results in a remote possibility that a material misstatement of the annual or interim financial statements
will not be prevented or detected.
D. that results in a reasonable possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
60. When would the auditor issue an unqualified opinion on the internal controls of a client?
A. No material weaknesses in internal controls are found.
B. No significant deficiencies in internal controls are found.
C. No errors are found in the account balances of the client.
D. Either A or B.
62. In examining controls for transactions and events, which of the following assertions would be included:
A. occurrence.
B. completeness.
C. valuation.
D. all are included.
63. Which of the following is not correct about the performance of tests of controls?
A. Tests of controls must be performed for every account.
B. Some tests of controls must be performed to rely upon controls to reduce substantive testing.
C. The work of the internal auditor can be used to reduce substantive testing.
D. All of the above are correct.
64. In evaluating residual risk of account balances, tests of controls by the auditor involves the assessment of
A. the design of controls.
B. the operation of controls.
C. the strength of the control environment.
D. all of the above
65. In assessing internal controls the auditor is suppose to apply the concept of reasonable assurance, which
indicates that
A. there should be a clear separation of duties between personnel who authorize, record, and hold assets.
B. the costs of a control should not exceed its benefits.
C. testing of the controls should provide assurance that they work most of the time.
D. testing of the controls should provide reasonable assurance that they are working properly.
66. Which of the following statements about internal control is not correct?
A. The costs of the control should not exceed the benefits.
B. The auditors assessment of detection risk is inversely related to the assessment of control risk.
C. Stronger internal controls result in an increase in the number of required substantive audit procedures.
D. Management is responsible for the maintenance of internal control.
67. When assessing the client which of the following factors is considered pervasive and creates both an attitude
and culture that affects the clients reporting system, the process of recording transactions, and the process of
making estimates and adjustments.
A. The control environment.
B. Audit testing of processes and controls.
C. Design and operation of controls.
D. Inherent and control risk.
69. If the auditors assessment of audit risk is low (e.g., 1% rather than 5%), what is the effect on the amount of
direct testing performed by the auditor?
A. Increase in direct testing.
B. Decrease in direct testing
C. No change in direct testing.
D. Direct testing is not needed.
70. If the auditors assessment of an account balance is material, what is the effect on the amount of direct
testing performed by the auditor?
A. Increase in direct testing.
B. Decrease in direct testing
C. No change in direct testing.
D. Direct testing is not needed.
71. If the auditors assessment of an internal control is that it is effective, what is the effect on the amount of
direct testing performed by the auditor?
A. Increase in direct testing.
B. decrease in direct testing
C. No change in direct testing.
D. Direct testing is not needed.
72. Large public company audited financial statements are required to be accompanied by:
A. managements report on internal control over financial reporting.
B. an external audit report on the financial statements and the effectiveness of internal control over financial
reporting.
C. the internal auditors report on the financial statements.
D. both A and B.
E. all of the above.
73. Control deficiencies result when there are deficiencies in the design or operation of controls and may result
in
A. reportable deficiencies.
B. significant deficiencies.
C. material weaknesses.
D. either B or C.
E. all of the above.
74. In an integrated audit the auditor must test the controls of all material processes of the client unless
A. substantive testing would be more effective and efficient.
B. the controls were in place last year.
C. there have been changes to the controls during the year.
D. the design of the control would not prevent material misstatements.
75. Even though there was a material weakness in internal control, management of the company issues an
unqualified report. What types of report(s) would the auditor issue?
A. An adverse opinion on managements assessment of internal control and in their report on internal control.
B. An unqualified opinion on managements assessment of internal control and an adverse opinion in their
report on internal control.
C. An unqualified opinion on managements assessment of internal control and in their report on internal
control.
D. An adverse opinion on managements assessment of internal control and an unqualified report on internal
control.
76. In an integrated audit the auditors report on internal control does not require the statement that
A. the audit was conducted in accordance with AICPA auditing standards.
B. management is responsible for maintaining effective internal control.
C. used COSOs internal control framework.
D. a reasonable basis exists for their opinion.
77. Which of the following factor(s) is considered by the auditor in evaluating the potential for residual risk
remaining in an account balance or class of transactions?
A. Sources of potential misstatement.
B. Extent of potential misstatement.
C. Type of potential misstatement.
D. All of the above should be considered.
78. Which of the following is not one of the phases in planning an integrated audit?
A. identifying and assessing business risk.
B. documenting all controls.
C. assessing fraud risk.
D. determining the most efficient manner in which to conduct an integrated audit.
79. Ultimately, the starting point of the integrated audit should be to understand all of the following except
A. the risks that the business faces in meeting its objectives, with a focus on the objective of accurate financial
reporting
B. the incentives that may motivate management or other employees to misstate the financial statements
C. the risks inherent in important business processes
D. the results of direct account substantive testing
80. The auditor could assess control risk for an account at the maximum when
A. immaterial control deficiencies exists in the account.
B. significant control deficiencies exists in an account.
C. material weaknesses exists in an account.
D. both A and B.
81. In an integrated audit, the amount of direct testing of account balances is inversely related to
A. subjectivity of estimates.
B. riskiness of the account.
C. effectiveness of internal control.
D. materiality of the account.
82. The types of opinion on internal control that may be issued are
A. Unqualified.
B. Qualified.
C. Adverse.
D. Either A or C.
E. All of the above.
84. The probability that an account balance might be misstated after processes are complete and internal
controls have been applied is
A. residual risk.
B. business risk.
C. audit risk.
D. control risk.