Objectives of an entity include:
Answer(s): D
Choice "d" is correct. No - Yes - Yes. An entity's objectives consist of financial reporting, operations, and compliance. Information and communication is a component of internal control, not an objective.Choices "a", "b", and "c" are incorrect, per the above.
Internal control over safeguarding of assets may include controls relating to:
Answer(s): A
Choice "a" is correct. Yes - Yes - No.Internal control over safeguarding of assets may relate to both financial reporting and operations objectives. For example, controls related to financial reporting might include:1. Use of a lockbox system for collecting cash, or2. Passwords for limiting access to accounts receivable data files. Controls related to operations might include controls to prevent the excess use of materials in production. Internal control over safeguarding of assets generally would not relate to compliance objectives. (Note that the auditor generally would only be concerned with the controls relevant to financial reporting, but this question does not ask which controls are important to the auditor.) Choices "b", "c", and "d" are incorrect, based on the above explanation.
The responsibility to establish, maintain and monitor internal controls is that of the entity's:
Answer(s): C
Choice "c" is correct. The entity's management is responsible for establishing, maintaining, and monitoring the entity's internal controls, considering whether those controls are operating as intended, and modifying controls as conditions change.Choice "a" is incorrect. The accounting department is not responsible for establishing, maintaining, and monitoring internal controls.Choice "b" is incorrect. The internal auditors contribute to the monitoring of the entity's activities,but are not responsible for establishing or maintaining them. Choice "d" is incorrect. The (external) auditor is required to obtain sufficient knowledge of internal control, but is not responsible for establishing, maintaining, and/or monitoring internal control.
Internal control is relevant to:
Choice "d" is correct. Internal control is relevant to the entity, its operating units, and its business functions.Choices "a", "b", and "c" are incorrect. Internal control is relevant to all parts of the entity, although not all controls may be relevant to a financial statement audit.
Which of the following is necessary in a financial statement audit?
Choice "c" is correct. An understanding of internal control relevant to an entity's financial reporting objective is necessary as part of audit planning.Choices "a" and "b" are incorrect. An understanding of internal control relevant to each of an entity's operating units and business functions may not always be necessary. Choice "d" is incorrect. Not all compliance objectives are relevant to an audit, since some are not related to financial reporting.
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