1.Which of the following is not one of the steps the auditor must perform to assess control risk at less than “high” for a financial statement assertion?
A) obtain an understanding of internal control
B) identify controls that address all relevant assertions
in the financial statements
C) make a preliminary assessment of control risk based on the
design of relevant controls
D) test the operating effectiveness of the controls that must be
effective to reduce control risk
2.Which of the following statements about the Sarbanes-Oxley Section 404 internal control reporting requirements for U.S. public companies is not correct?
A) Non-accelerated filers are exempt from all of the
Sarbanes-Oxley Section 404 internal control reporting
provisions.
B) Management of all U.S. public companies must report on their
assessment of the effectiveness of the company’s internal control
over financial reporting.
C) Management’s annual internal control report is included in its
annual report filed with the Securities and Exchange
Commission.
D) The PCAOB’s internal control auditing standard (Auditing
Standard No. 5) requires that the internal control audit be
integrated with the financial statement audit.
3. Which of the following are relevant to the auditor’s evaluation of depreciation expense?
A) The assigned useful lives of property, plant and
equipment
B) The detailed deprecation calculations made by the client
C) Analytical relationships between depreciation expense,
accumulated depreciation, and fixed asset balances D) All of the
above
4. Based on the risk assessment procedures, the auditor determined that there was not a fraud risk related to revenue recognition. What is the auditor’s most likely response to this determination?
A) Because it is presumed there is a risk of fraud related to
revenue recognition, the auditor will perform auditing procedures
to respond to that fraud risk.
B) The auditor will perform auditing procedures to obtain
substantive audit evidence that the fraud risk related to revenue
recognition does not exist.
C) The auditor will document the reasons why she believes there
is no fraud risk related to revenue recognition, and perform
procedures to respond to the assessed risk of material
misstatement.
D) The auditor will perform procedures to respond to the assessed
risk of material misstatement.
1. Correct answer is D
Reason - test the operating effectiveness of the controls that must be effective to reduce control risk is something which is done after the assessment of control risk. assessment of control risk is done at audit planning level or preliminary stages of audit whereas actual testing of operating effectiveness is a part of execution of audit.
2. Correct answer is B
Reason - Inclusion of report on tests of internal controls over financial reporting in the annual report and filing with SEC is as per SOX. Report on assessment of internal controls over financial reporting is not mandated.
3. Correct answer is D
Reason - All the steps mentioned in the options are required to audit depreciation expense
4. Correct answer is C
Reason - Documentation is very important about the basis or reasons that you used to come to a conclusion that there was no risk. And after recording the same, the auditor shall perform procedures to respond to the assessed risk.
1.Which of the following is not one of the steps the auditor must perform to assess...
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