1 Internal control is primarily established within a company to

do which of the following?

A) Prevent fraud
B) Provide reasonable assurance that the company's
objectives will be achieved
C) Catch all errors that may occur in the company.
D) Aid in the effective auditing of the company.

2 Providing reasonable assurance with respect to which of the

following is not required under the internal control provisions
of the Foreign Corrupt Practices Act?
A) Management is responsibility for knowledge and
authorization of transactions.
B) Transactions are recorded to maintain accountability
for assets.
C) Access to assets is limited to members of
management.
D) Transactions are recorded to permit the preparation of
reliable financial statements.

3 Which of the following is considered a control environment

factor by the COSO definition of internal control?
A) Control objectives.
B) Integrity and ethical values.
C) Reasonable assurance.
D) Risk assessment.

4 Billy Jo is responsible for custody of the finished goods in the

warehouse. If his company wishes to maintain strong internal
control, which of the following responsibilities are incompatible
with his primary job?
A) He is also responsible for the company's fixed asset
control ledger.
B) He is responsible for receiving of goods into the
warehouse.
C) He is responsible for the accounting records for all
receipts and shipments of goods from the warehouse.
 D) He is responsible for issuing goods for shipment.

5 Which of the following is least likely when an auditor performs

an integrated audit of a public company's financial
statements?
A) Issuing an audit report on internal control over
financial reporting.
B) Issuing an audit report on the financial statements.
C) Omitting tests of controls for several major accounts.
D) Performing tests of internal control design
effectiveness.

6 Which of the following describes the function of a fidelity

bond?
A) An insurance policy that covers theft by a bonded
employee.
B) A short term investment that is secured by a bank.
C) It is a procedure to separate the duties of employees.
D) A contract between parents and their children to
remain celibate.

7 Tests of controls are used to test whether controls are

A) Operating effectively.
B) Implemented (placed in operation).
C) Properly accumulated into balance sheet totals.
D) Properly documented by the client.

8 Tests of controls are least likely to include:

A) Inquiries of appropriate client vendors.
B) Reperformance of a control.
C) Observation of the application of an accounting
procedure.
D) Inspection of documents.
9 Which of the following is most likely to be considered an
inherent limitation of a client's internal control?
A) Complexity of the information system.
B) Human errors.
C) Management's interest in a profitable enterprise.
D) An ineffective audit committee.

10 Which of the following is one of the most fundamental and

effective controls?
A) Increased use of computers for recording accounting
transactions.
B) Increased reliance on internal auditors to monitor
accounting systems.
C) Segregation of incompatible duties across several
people.
D) Having internal auditors report only to the Board of
Directors.

11 Control risk is most likely to be assessed at a level below the

maximum when?
A) No tests of controls have been performed.
B) Tests of controls have been performed.
C) Externally generated evidence supports management's
contentions relating to internal control.
D) The results of the consideration of internal control
suggest that controls are not operating effectively.

12 The results of the consideration of internal control are least

likely to affect the auditors' decisions pertaining to:
A) The use of analytical procedures.
B) The assessment of control risk.
C) The assessment of inherent risk.
D) Detailed tests of ending balance.