Audit planning 001

5. An auditor evaluates the existing internal control in order to

a. Determine the extent of substantive tests which must be performed.
b. Determine the extent of control tests which must be performed.
c. Ascertain whether irregularities are probable.
d. Ascertain whether any employees have incompatible functions.
ANSWER: A
6. The auditor is studying internal control policies and procedures within the sales, shipping, and billing subset of the
revenue cycle. Which of the following conditions suggests a need for additional testing of controls?
a. Internal control is found to be weak with regard to shipping and billing.
b. Internal control over sales, billing, and shipping appears strong, but 80% of sales revenue is attributable to three
major customers.
c. Internal control over billing and shipping is thought to be strong and the auditor considers additional testing of
selected controls will result in a major reduction in substantive testing.
d. Internal control over the recording of sales is found to be weak and the sales are evenly divided among a large
number of customers.
ANSWER: C
7. A secondary objective of the auditor's study and evaluation of internal control is that the study and evaluation
provide
a. A basis for constructive suggestions concerning improvements in internal control.
b. A basis for reducing the auditor's assessed level of control risk below the maximum level.
c. An assurance that the records and documents have been maintained in accordance with existing company policies
and procedures.
d. A basis for determination of the resultant extent of the tests to which auditing procedures are to be restricted.
ANSWER: A
8. In studying the design and implementation of a client's internal controls, the auditor needs to identify necessary
control points. Controls existing at these points may be classified as "accuracy" controls and "safeguard" controls.
Which of the following controls may be regarded as a safeguard control?
a. In processing sales orders, the computer is programmed to compare the customer's credit limit minus the prior
balance with the current sales order amount.
b. Sales prices are stored in computer memory and are automatically applied as stock numbers are entered from
customer orders.
c. Although the payroll is prepared manually, a second employee recalculates gross pay, withholdings, and net pay.
d. Negotiable securities are kept in a locked vault and are accessible only by the treasurer accompanied by one of
her assistants.
ANSWER: D
9. The auditor's review of the client's internal control is documented in order to substantiate
a. Conformity of the accounting records with generally accepted accounting principles.
b. Representation as to adherence to requirements of management.
c. Representation as to compliance with generally accepted auditing standards.
d. The fairness of the financial statement presentation.
ANSWER: C
10. An internal control questionnaire indicates that an approved receiving report is required to accompany every
check request for payment of merchandise. Which of the following procedures provides the greatest assurance that
this control is operating effectively?
a. Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the
checks.
b. Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the
checks.
c. Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the
receiving reports.
d. Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the
receiving reports.
ANSWER: B
11. When considering internal control, an auditor must be aware of the concept of reasonable assurance which
recognizes that
a. The employment of competent personnel provides assurance that the objectives of internal control will be
achieved.
b. The establishment and maintenance of a system of internal control is an important responsibility of the
management and not of the auditor.
c. The cost of internal control should not exceed the benefits expected to be derived from internal control.