Audit Ch 10-11

Internal controls are not designed to provide reasonable assurance that:

all frauds will be detected.

Section 404 of the Sarbanes-Oxley Act requires that public companies issue an internal control report.

true

Management has a legal and professional responsibility to be sure that the financial statements are prepared in accordance with reporting requirements of applicable accounting frameworks

true

Management must disclose material weaknesses in internal control in its audit report:

if the weakness exists at the end of the year

Internal controls can never be regarded as completely effective. Even if company personnel could design an ideal system, its effectiveness depends on the:

competency and dependability of the people using it

The Sarbanes-Oxley Act requires:

all public companies to issue reports on internal controls

To issue a report on internal control over financial reporting for a public company, an auditor must:

evaluate management's assessment process and independently assess the design and operating effectiveness of internal control

Which of the following statements is most correct with respect to separation of duties?

Employees who authorize transactions should not have custody of related assets

Which of the following best describes the purpose of control activities?

The policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives

Proper segregation of functional responsibilities calls for separation of:

authorization, recording, and custody

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:

performing a walk-through

The person responsible for reconciling sales invoices to customer orders does not access to thecompany's master price list in order to correctly compute sales. This is an example of a(n)

design deficiency

Which of the following best defines fraud in a financial statement auditing context?

Fraud is an intentional misstatement of the financial statements

Fraud is more prevalent in smaller businesses and not-for-profit organizations because it is more difficult for them to maintain:

adequate separation of duties

Which of the following is a factor that relates to incentives or pressures to commit fraudulent financial reporting?

Excessive pressure for management to meet debt repayment requirements

Which of the following is a factor that relates to incentives to misappropriate assets?

Significant personal financial obligations

The same three fraud triangle risk conditions apply to fraudulent financial reporting and misappropriation of assets

true

Which of the following is not a likely source of information to assess fraud risks?

Consideration of fraud risks discovered during recent audits of other clients

Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?

Management

Management is responsible for:

Identifying and measuring fraud risks and Taking steps to mitigate identified risks

Audit committee oversight also serves as a deterrent to fraud by senior management

true

Analytical procedures can be very effective in detecting inventory fraud. Which of the following analytical procedures would not be useful in detecting fraud?

Accounts receivable turnover

PCAOB Standard 5 states that fraud of any magnitude by senior management is at least a significant deficiency in internal controls.

true

Which of the following is true?

Tests of details of balances focus on the ending general ledger balances for both balance sheet and income statement accounts.

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential?

an appropriate level of mgmt that is at least one level above those involved

Auditing standards require auditors to identify specific fraud risk areas. Which of the following is presumed to be subject to fraud risk?

revenue or sales

Internal Controls

guarantee that the company complies with all laws and regulations

Which of the following is not one of the three primary objectives of effective internal controls?

assurance of elimination of biz risk

The PCAOB places responsibility for the reliability of internal controls over the financial reporting process on

management