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  • CHAPTER 3 Auditing-Theory-MCQs-by-Salosagcol-with-answers

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    This document discusses internal controls and the auditor's responsibility for evaluating them. It covers the five components of internal control, control activities, assessing control risk, and testing controls. The key points are: 1) Management is responsible for establishing and maintaining internal controls, which aim to safeguard assets and ensure reliable financial reporting. 2) The five components of internal control are the control environment, risk assessment, control activities, information and communication, and monitoring activities. 3) Control activities include policies, procedures, and segregation of duties that help ensure management directives are carried out. 4) The auditor evaluates internal controls to determine the nature, timing and extent of audit procedures, and must test controls relied on

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    This document discusses internal controls and the auditor's responsibility for evaluating them. It covers the five components of internal control, control activities, assessing control risk, and testing controls. The key points are: 1) Management is responsible for establishing and maintaining internal controls, which aim to safeguard assets and ensure reliable financial reporting. 2) The five components of internal control are the control environment, risk assessment, control activities, information and communication, and monitoring activities. 3) Control activities include policies, procedures, and segregation of duties that help ensure management directives are carried out. 4) The auditor evaluates internal controls to determine the nature, timing and extent of audit procedures, and must test controls relied on

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    © All Rights Reserved
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    135 views2 pages

    CHAPTER 3 Auditing-Theory-MCQs-by-Salosagcol-with-answers

    Uploaded by

    Mich
    This document discusses internal controls and the auditor's responsibility for evaluating them. It covers the five components of internal control, control activities, assessing control risk, and testing controls. The key points are: 1) Management is responsible for establishing and maintaining internal controls, which aim to safeguard assets and ensure reliable financial reporting. 2) The five components of internal control are the control environment, risk assessment, control activities, information and communication, and monitoring activities. 3) Control activities include policies, procedures, and segregation of duties that help ensure management directives are carried out. 4) The auditor evaluates internal controls to determine the nature, timing and extent of audit procedures, and must test controls relied on

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    of 2

    CHAPTER 3:

    11. Which of the following is not one of the subcomponents of the


    1. The primary responsibility for establishing and maintaining an control environment?
    internal control rests with a. Management philosophy and operating style
    a. The external auditors b. Organizational structure
    b. The internal auditors
    c. Adequate separation of duties
    c. Management and those charged with governance
    d. The controller or the treasurer d. Commitment to competence

    2. The fundamental purpose of an internal control is to 12. Which of the following deal with ongoing or periodic assessment
    a. Safeguard the resources of the organization of quality of internal control by management?
    b. Provide reasonable assurance that the objectives of the a. Quality control activities
    organization are achieved b. Monitoring activities
    c. Encourage compliance with organization objectives
    c. Oversight activities
    d. Ensure the accuracy, reliability and timeliness of
    information d. Management activities

    3. Which of the following is not one of the three primary objectives13. The policies and procedures that help ensure that management
    of effective internal control? directives are carried out are referred to as the:
    a. Reliability of financial reporting a. Control environment
    b. Efficiency and effectiveness of operations b. Control activities
    c. Compliance with laws and regulations
    c. Monitoring of controls
    d. Assurance of elimination of business risk.
    d. Information systems
    4. Which of the following internal control objectives would be most
    relevant to the audit?
    a. Operational objective 14. Which of the following is not one of the specific control activities
    b. Compliance objective that are relevant to financial statement audit?
    c. Financial reporting objective a. Performance reviews
    d. Administrative control objective b. Physical controls
    c. Segregation of duties
    5. An act of two or more employee to steal assets and cover their
    theft by misstating the accounting records would be referred to d. Monitoring
    as:
    a. Collusion 15. Proper segregation of functional responsibilities in an effective
    b. A material weakness structure of internal control calls for separation of functions of
    c. A control deficiency a. Authorization, execution, and payment
    d. A significant deficiency b. Authorization, recording, and custody
    c. Custody, execution, and reporting
    6. Which of the following is not one of the components of an entity’s
    internal control? d. Authorization, payment, and recording
    a. Control risk
    b. Control activities 16. Which of the following best describes the purpose of the control
    c. Information and communication activities?
    d. The control environment a. The actions, policies and procedures that reflect the
    overall attitudes of the management
    7. The overall attitude and awareness of an entity’s board of director
    b. The identification and analysis of risks and relevant to
    concerning the importance of the internal control usually is
    reflected in its the preparation of the financial statements
    a. Computer-based controls c. The policies and procedures that help ensure that
    b. System of segregation of duties necessary actions are taken in order to achieve the
    c. Control environment entity’s objectives
    d. Safeguard over access of assets d. Activities that deal with the ongoing assessment of the
    8. In evaluating the design of the entity’s internal control quality of internal control by management
    environment, the auditor considers the certain subcomponents of
    control environment and how they have been incorporated into17. When the auditor attempts to understand the operation of the
    the entity’s processes. Subcomponents of control environment accounting system by tracing a few transactions through the
    would include accounting system, the auditor is said to be:
    a. Integrity and ethical values a. Tracing
    b. Commitment to competence b. Vouching
    c. Organizational structure c. Performing a walk through
    d. Information and communications systems d. Testing controls

    9. Which of the following components of an entity’s internal control18. Which of the following is not a medium that can normally be used
    structure includes the development of employee promotion and by an auditor to record information concerning a client’s internal
    training policies? control policies and procedures?
    a. Control activities a. Narrative memorandum
    b. Control environment b. Flowchart
    c. Information and communication c. Procedures manual
    d. Quality control system d. Questionnaire

    10. Which of the following subcomponents of the control19. An auditor uses the knowledge provided by the understanding of
    environment define the existing lines of responsibility and internal control and the final assessed level of control risk
    authority? primarily to determine the nature, timing and extent of the
    a. Organizational structure a. Attribute tests
    b. Management philosophy and operating style b. Tests of controls
    c. Human resource policies and practices c. Compliance tests
    d. Management integrity and ethical values
    d. Substantive tests
    20. Based on the requirement of PSA 3330, how frequently must an
    auditor test operating effectiveness of controls that appear to
    functions as they have in past years and on which the auditor
    wishes to rely in the current year?
    a. Monthly
    b. Each audit
    c. At least every second audit
    d. At least every third audit

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