Question

MULTIPLE CHOICE QUESTIONS!

1)In obtaining an understanding of an entity's internal control relevant to audit planning, an auditor is required to obtain knowledge about the

a) Controls related to each principal transaction class and account balance.

b) Consistency with which controls are currently being applied.

c) Effectiveness of controls that have been implemented.

d) Design of the controls pertaining to internal control components.

2) In a good system of segregation of duties, which of the following duties should be segregated?

a) Authorization of transactions, physical access to assets, and recording transactions.

b) Authorization of transactions, recording transactions, and management.

c) Physical access to assets, recording of transactions, and consideration.

d) Authorization of transactions, physical access to assets, and management.

3) An auditor normally obtains an understanding of transaction-level controls by:

a) conducting an interview with senior management.

b) testing the entity’s risk assessment process.

c) performing a system walkthrough.

d) reading the prior year’s management letter.

4) Documenting internal controls:

a) can be handled with a combination of narratives and flowcharts or logic diagrams.

b) is not done for smaller clients because of the risk of management override.

c) is always handled through the use of checklists and preformatted questionnaires.

d) is done after internal controls are tested so that the results can be included in the documentation.

Answer 1

Answer

1.d) Design of the controls pertaining to internal control components.

The auditor should obtain sufficient understanding about thr relevant internal control designs which are related to the financial reporting regarding the five five internal control components.

2.a) Authorization of transactions, physical access to assets, and recording transactions.

The maker and authorizer of transactions should be different individuals,Records and physical access to assets should be given to to different individuals .

3.c) performing a system walkthrough.

Transaction level controls when not in place can impact the range of transactions which are used to prepare financial statements.So if they are to analysed a system walkthrough is a must to understand how weil the internal controls are in place.

4.a) can be handled with a combination of narratives and flowcharts or logic diagrams.

According to Sarbanes oxley Act internal controls need to be documented in the form of flowcharts , diagrams and also Sox internal control checklists.