ACCT 231 Auditing theories mcq - Contains different problem set and solution manual needed for the subject. Accounting 1
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Course
ACCT 231 (ACCT231)
Institution
St. Augustine\'S College
Auditing theories mcq - Contains different problem set and solution
manual needed for the subject.
Accounting 1
1. The primary responsibility for establishing and maintaining an internal control rests
with
a. The external auditors
b. The internal auditors
c. Management and those charged with...
Auditing theories mcq - Contains different problem set and solution
manual needed for the subject.
Accounting 1
1. The primary responsibility for establishing and maintaining an internal control rests
with
a. The external auditors
b. The internal auditors
c. Management and those charged with governance
d. The controller or the treasurer
2. The fundamental purpose of an internal control is to
a. Safeguard the resources of the organization
b. Provide reasonable assurance that the objectives of the organization are achieved
c. Encourage compliance with organization objectives
d. Ensure the accuracy, reliability, and timeliness of information
3. Which of the following is not one of the three primary objectives of effective internal
control?
a. Reliability of financial reporting
b. Efficiency and effectiveness of operations
c. Compliance with laws and regulations
d. Assurance of elimination of business risk
4. Which of the following internal control objectives would be most relevant to the audit?
a. Operational objective
b. Compliance objective
c. Financial reporting objective
d. Administrative control objective
5. Which statement is correct concerning the relevance of various types of controls to a
financial audit?
a. An auditor may ordinarily ignore a consideration of controls when a substantive
audit approach is taken
b. Controls over the reliability of financial reporting are ordinarily most directly
relevant to an audit but other controls may also be relevant
c. Controls over safeguarding of assets and liabilities are of primary importance,
while controls over the reliability of financial reporting may also be relevant
d. All controls are ordinarily relevant to an audit.
6. An auditor would most likely be concerned with internal control policies and procedures
that provide reasonable assurance about the
a. Efficiency of management’s decision-making process
b. Appropriate prices the entity should charge for its products
c. Methods of assigning production tasks to employees
d. Entity’s ability to process and summarize financial data
7. In an audit of financial statements, an auditor’s primary consideration regarding an
internal control activity is whether the control
a. Reflects management’s philosophy and operating style
b. Affects management’s financial statement assertion
c. Provides adequate safeguards over access to assets
d. Enhances management’s decision-making process
8. Two key concepts that underlie management’s design and implementation of internal control
are:
a. Costs and materiality
b. Absolute assurance and costs
c. Inherent limitations and reasonable assurance
d. Collusion and materiality
9. Internal control can provide only reasonable assurance of achieving entity’s control
objectives. One factor limiting the likelihood of achieving those objectives is that
a. The auditor’s primary responsibility is the detection of fraud
b. The board of directors is active and independent
c. The cost of internal control should not exceed its benefits
d. Management monitors internal control
10. An act of two or more employees to steal assets and cover their theft by misstating the
accounting records would be referred to as:
a. Collusion
b. A material weakness
c. A control deficiency
d. A significant deficiency
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, 11. Inherent limitations in an internal control must be considered in evaluating its
effectiveness in preventing and detecting errors and fraud. Inherent limitations do not
include
a. Misunderstanding of instructions, mistakes of judgment, personal carelessness,
distraction, or fatigue.
b. Incompatible functions performed by the same person.
c. Collusion among employees.
d. Management override of certain policies or procedures.
12. Which of the following best describes an inherent limitation that should be recognized by
an auditor when considering the potential effectiveness of an internal control structure?
a. Procedures whose effectiveness depends on segregation of duties can be
circumvented by collusion.
b. The competence and integrity of client personnel provide an environment conducive
to control and provides assurance that effective control will be achieved.
c. Procedures designed to assure the execution and recording of transactions in
accordance with proper authorizations are effective against fraud perpetrated by
management.
d. The benefits expected to be derived from effective internal control usually do not
exceed the cost of such control.
13. When considering the effectiveness of a system of internal control, the auditor should
recognize that inherent limitations do exist. Which of the following is an example of an
inherent limitation in a system of internal accounting control?
a. The effectiveness of procedures depends on the segregation of employee duties.
b. Procedures are designed to assure the execution and recording of transactions in
accordance with management’s authorization.
c. In the performance of most control procedures, there are possibilities of errors
arising from mistakes in judgment.
d. Procedures for handling large numbers of transactions are processed by electronic
data processing equipment.
14. An effective system of internal control
a. Cannot be circumvented by management
b. Can reduce the cost of an external audit
c. Can prevent collusion among employees
d. Eliminates risks and potential loss to the organization
15. Internal controls are not designed to provide reasonable assurance that:
a. All frauds will be detected
b. Transactions are executed in accordance with management’s authorization
c. Access to assets is permitted only in accordance with management’s authorization
d. Company personnel comply with applicable rules and regulations
16. The internal control cannot be designed to provide reasonable assurance that:
a. Transactions are executed in accordance with management’s authorization
b. Fraud will be eliminated
c. Access to assets is permitted only in accordance with management’s authorization
d. The recorded accountability for assets is compared with the existing assets at
reasonable intervals
17. Which of the following statements about internal control is correct?
a. Properly maintained internal control reasonably ensures that collusion among
employees cannot occur.
b. The establishment and maintenance of internal control are important
responsibilities of the internal auditor.
c. Exceptionally strong internal control is enough for the auditor to eliminate
substantive tests on a significant account balance.
d. The cost-benefit relationship is a primary criterion that should be considered in
designing internal control.
18. Which of the following is correct about internal control?
a. Accounting and internal control systems provide management with conclusive
evidence that objectives are reached.
b. One of the inherent limitations of accounting and internal control systems is the
possibility that the procedures may become inadequate due to changes in
conditions, and compliance with procedures may deteriorate.
c. Most internal controls tend to be directed at non-routine transactions.
d. Management does not consider costs of the accounting and internal control systems.
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