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CPA AUD Understanding and Testing of Internal Control
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CPA AUD testing of internal control requires understanding design/implementation (walkthroughs) and testing operating effectiveness (inquiry, observation, inspection, reperformance). Auditors evaluate control risk to determine the nature, timing, and extent of substantive procedures. If controls are effective, substantive testing is reduced.   1. Understanding Internal Control (Design & Implementation) Auditors must understand the control environment and information systems (IT).  Purpose: Determine if controls are designed to prevent or detect material misstatements. Procedures:... Show more
CPA AUD Understanding and Testing of Internal Control
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18 Questions

1. Internal controls of all of a reporting entity’s operating units and business functions is a primary concern of:
I. the entity’s independent auditor
II. the entity’s management and those charged with governance
2. Under US GAAS, which of the following is always necessary in a financial statement audit?
I. An indication whether or not the financial statements agree with the accounting records
II. Risk assessment procedures
III. Testing of controls
3. Tests of controls must be performed:
I. when the auditor’s risk assessment is based on the assumption that controls are operating effectively
II. when substantive procedures alone are insufficient
4. Tests of controls must be performed:
I. when the auditor’s risk assessment is based on the assumption that controls are operating effectively
II. when substantive procedures alone are insufficient
5. Which of the following describes the auditor’s ultimate purpose of assessing control risk?
I. Evaluate the risk of financial statement misstatement
II. Make recommendations regarding the five components of internal control
6. Which of the following represents an inherent limitation of internal control?
I. Collusion among employees
II. Mistakes in judgment
7. An auditor’s flowchart of the accounting system is a diagrammatic representation that shows the auditor’s:
I. understanding of the system
II. assessment of control risk
8. In an audit performed under GAAS, which of the following should an auditor do when control risk is assessed at the maximum level?
9. The auditor is likely to focus the assessment of control risk on the entity’s:
I. reporting controls
II. operational controls
10. An auditor gains an understanding of the client’s attempt to keep internal controls up to date. This ongoing process of keeping controls effective:
I. refers to the monitoring component of internal control
II. is often performed by the internal audit function
11. Assessing control risk at a low level most likely would involve:
I. identifying specific controls relevant to specific assertions
II. performing more extensive substantive tests than originally planned
12. Which of the following represents an inherent limitation of internal control?
I. Management override
II. Incompatible duties
13. Which of the following represents an inherent limitation of internal control?
I. Management override
II. Incompatible duties
14. In an audit performed under GAAS, which of the following should an auditor do when control risk is assessed at the maximum level?
15. The auditor is likely to focus the assessment of control risk on the entity’s:
I. reporting controls
II. operational controls
16. Management’s ability to foresee problems and take steps in advance to prevent problems is known as:
I. control environment
II. control activities
17. An auditor gains an understanding of the client’s attempt to keep internal controls up to date. This ongoing process of keeping controls effective:
I. refers to the monitoring component of internal control
II. is often performed by the internal audit function
18. To obtain audit evidence about control risk, an auditor seeks to test controls and test for segregation of duties. The auditor will likely test for segregation of duties by:

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