In planning the audit, the auditor obtains a sufficient understanding of the existing internal control. Which one of the following is not among the auditor's primary objectives for obtaining such knowledge?
Answer(s): C
Choice "c" is correct. Making constructive suggestions to the client is not a primary objective for obtainingan understanding of internal control, although it may be a desirable by-product of an audit engagement.Choices "a", "b", and "d" are incorrect, as the following are primary internal control planning objectives of an auditor in a financial statement audit:A . Identify types of potential material misstatements.B . Consider factors that affect the risk of material misstatements.D . Design effective substantive tests.
Which of the following components (elements) of an entity's internal control includes the development of personnel manuals documenting employee promotion and training policies?
Answer(s): B
Choice "b" is correct. The control environment element of an entity's internal control relates to the tone of the organization, which includes human resource policies and practices. Choice "a" is incorrect. Monitoring activities assess the quality of internal control performance over time.Choice "c" is incorrect. The information and communication system relates to the identification, capture, and exchange of information.Choice "d" is incorrect. A quality control system is not a component of an entity's internal control.
Which of the following statements about internal control is correct?
Answer(s): D
Choice "d" is correct. The concept of reasonable assurance recognizes that the cost of an entity's internal control should not exceed the benefits that are expected to be deriveD. The cost-benefit relationship is a primary criterion that should be considered in designing internal control. Choice "a" is incorrect. Even a properly maintained system of internal control is unable to reasonably ensure that collusion among employees cannot occur.Choice "b" is incorrect. Establishing and maintaining internal control is the responsibility of management - - not the internal auditor.Choice "c" is incorrect. An exceptionally strong internal control that has been tested and can be relied upon by the auditor will allow the auditor to reduce (but not eliminate) substantive tests on significant account balances.
An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the:
Choice "d" is correct. An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the substantive tests to be performed. Choices "a", "b", and "c" are incorrect. Attribute tests, compliance tests, and tests of controls are all tests that assist the auditor in assessing control risk and determining the final assessed risk of material misstatement, not the other way around.
An auditor would most likely be concerned with internal controls that provide reasonable assurance about the:
Choice "d" is correct. An auditor would most likely be concerned with internal controls that provide reasonable assurance about the entity's ability to process and summarize financial data. Choice "a" is incorrect. The auditor is primarily concerned with the fair presentation of the financial statements, and would not particularly care about the efficiency of management's decision-making process.Choice "b" is incorrect. The auditor is primarily concerned with the fair presentation of the financial statements. Pricing decisions made by management would not be of much concern, as long as the related transactions were appropriately valued and recorded. Choice "c" is incorrect. The auditor is primarily concerned with the fair presentation of the financial statements. How the client assigns tasks to its employees generally is of little concern to the auditor.
Post your Comments and Discuss AICPA CPA-Auditing exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CPA-Auditing content, but please register or login to continue.