MC CH 10 & 11 Auditing

Topics: Internal control, Auditing, Internal audit Pages: 49 (5595 words) Published: February 16, 2014
Multiple Choice

Which of the following is responsible for establishing a private company’s internal control? a.Management.
b.Auditors.
c.Management and auditors.
d.Committee of Sponsoring Organizations.

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.

The Public Company Accounting Oversight Board states that reasonable assurance allows a: a.small likelihood of ineffective internal controls.
b.remote likelihood that material misstatements will not be prevented or detected by internal control. c.likelihood that material misstatements will not be prevented or detected by internal control. d.high likelihood that material misstatements will not be prevented or detected by internal control.

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.

Internal controls can never be considered as absolutely effective because: a.their effectiveness is limited by the competency and dependability of employees. b.not all organizations have internal audit departments.

c.controls are designed to prevent and detect only material misstatements. d.internal controls prevent separation of duties.

A major control available in a small company, which might not be feasible in a big company, is: a.a wider segregation of duties.
b.a voucher system.
c.fewer transactions to process.
d.the owner-manager’s personal interest and close relationship with personnel.

Which of the following is responsible for establishing internal controls for a public company? a.Management.
b.The PCAOB.
c.Management and auditors.
d.Committee of Sponsoring Organizations.

Which of the following parties provides an assessment of the effectiveness of internal control over financial reporting for public companies?

Management

Financial statement auditors

a.
Yes

Yes

b.
No

No

c.
Yes

Yes

d.
No

No

An act of two or more employees to steal assets or misstate records is frequently referred to as: a.collusion.
b.a material weakness.
c.a control deficiency.
d.a significant deficiency.

When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be: a.tracing.
b.vouching.
c.performing a walk-through.
d.testing controls.

Which section of the Sarbanes-Oxley Act requires management to issue an internal control report? a.202
b.203
c.404
d.408

Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two requirements? a.A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. b.A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. c.A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. d.A statement that the external auditors are solely responsible.

When management is evaluating the design of internal control, management evaluates whether the control can do which of the following?

Detect material misstatements

Correct material misstatements

a.
b.
c.
d.
Yes
No
Yes
No
Yes
No
No
Yes

Internal control reports issued by public companies must identify the framework...
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