CIS Audit Test Bank

I.

TRUE TRUE OR OR FAL FALSE SE – Wri Write te the the wor word d true true on on the the spac space e befo before re the the num numbe berr if the the sta state temen mentt is true otherwise write the word fa!se

"hapter #$Audi%n& and Interna! "ontro! 1. 3. '. ,. . 11. 13. 1'. 1,. 1. 01. 22.

Corporate management (including the CEO) must must certify monthly and and annually their organization’ organization’ss internal controls over financial reporting. F oth the !EC and the the "C#O re$uire re$uire management management to use the the CO!O frame%or& frame%or& for assessin assessing g internal internal control ade$uacy. F he same internal control control o*ectives o*ectives apply apply to manual and computer+ased information systems.  !egregatio !egregation n of duties duties is an e-ample e-ample of an internal internal control control procedure. procedure.  # &ey modifying modifying assumption in internal internal control control is that the internal internal control control system system is the responsiility responsiility of management.  he !aranes+O-ley !aranes+O-ley #ct re$uires the audit committee to hire and oversee the e-ternal auditors. auditors.  !ection 3/0 3/0 re$uires the management management of pulic companies companies to assess and formally report report on the effectiveness of their organization’s organization’s internal controls. F #dvisory services services is an emerging emerging field that that goes eyond the auditor’s traditional attestation attestation function. function.  E-ternal auditing auditing is an independent independent appraisal function estalished estalished %ithin an organization to e-amine and evaluate its activities as a service to the organization. F ests of controls controls determine determine %hether the dataase dataase contents fairly reflect the organizations organizations transactions. transactions. F # strong internal internal control system %ill reduce the amount amount of sustantive sustantive testing that that must e e performed.  CO2CE CO2CE 4 2ndic 2ndicate ate the the corre correct ct lett letter er ans% ans%er er on on the the space space efore efore the numer numer..

#. The concept concept of reasonab! reasonab!e e assuran assurance ce su&&ests su&&ests that

a. the cost cost of an internal internal contr control ol should should e less less than than the enefi enefitt it provide providess  . a %ell+designed system system of internal controls %ill %ill detect all fraudulent fraudulent activity c. the o*ectiv o*ectives es achieved achieved y an interna internall control control system system vary dependin depending g on the data data  processing method d. the effectiv effectiveness eness of of internal internal controls controls is a functio function n of the industr industry y environment environment '. The most most cost cost(e)e (e)ec%*e c%*e t+pe t+pe of of interna interna!! contro! contro! is

a.  . c. d.

preven prev enti tive ve co cont ntro roll accounting control dete detect ctiv ivee con control trol corr correc ecti tive ve con contr trol ol

,. A we!!(des we!!(desi&ned i&ned purchase purchase order order is is an e-amp e-amp!e !e of a

a. pr prev even enti tive ve co cont ntro roll  . detective control c. corr correc ecti tive ve cont contro roll d. none none of the the aov aovee ,. he an& reconciliation uncovered a transposition transposition error in in the oo&s. oo&s. his his is an e-ample of a a. prev preven enti tive ve cont contro roll  . detective control c. corr correc ecti tive ve cont contro roll d. none none of the the aov aovee . 5hich of the the follo%ing follo%ing suggests suggests a %ea&ness %ea&ness in the interna internall control control environment environment66 a. the firm firm has an up+to up+to+da +date te organ organiza izatio tional nal chart chart  . monthly reports comparing comparing actual performance to udget udget are distriuted to managers c. perfo performanc rmancee evaluat evaluations ions are prepar prepared ed every every three three years d. the audit audit committ committee ee meets meets $uarterl $uarterly y %ith %ith the e-ter e-ternal nal audito auditors rs 11. 11. #ccording #ccording to CO!O7 CO!O7 an effective effective accounti accounting ng system system performs performs all of the follo%ing follo%ing e-cept e-cept a. identifies identifies and record recordss all valid financial financial transacti transactions ons  . records financial transactions transactions in the appropriate appropriate accounting period c. separ separates ates the dutie dutiess of data entry entry and repor reportt generati generation on d. records records all financial financial transacti transactions ons promptly promptly  13. 5hich of the follo% follo%ing ing is not not an interna internall control control procedur procedure6 e6 a. auth autho oriza rizati tio on  . management’ management’ss operating style c. inde indepe pend nden entt veri verifi fica cati tion on d. acco accoun unti ting ng rec recor ords ds 1'. When du%es du%es cannot be se&re&at se&re&ated ed the most importan importantt interna! interna! contro! contro! procedure procedure is a. supervision  . independent verification verification

1,.

1.

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c. access controls d. accounting records he importance to the accounting profession of the !aranes+O-ely #ct is that a. riery %ill e eliminated  . management %ill not override the company’s internal controls c. management are re$uired to certify their internal control system d. firms %ill not e e-posed to la%suits he office manager forgot to record in the accounting records the daily an& deposit. 5hich control  procedure %ould most li&ely prevent or detect this error6 a. segregation of duties  . independent verification c. accounting records d. supervision 2nternal control system have limitations. hese include all of the follo%ing e-cept a. possiility of honest error   . circumvention c. management override d. staility of systems 5hich of the follo%ing situations is not a segregation of duties violation6 a. he treasurer has the authority to sign chec&s ut gives the signature loc& to the assistant treasurer to run the chec&+signing machine.  . he %arehouse cler&7 %ho has the custodial responsiility over inventory in the %arehouse7 selects the vendor and authorizes purchases %hen inventories are lo%. c. he sales manager has the responsiility to approve credit and the authority to %rite off accounts. d. he department time cler& is given the undistriuted payroll chec&s to mail to asent employees. e. he accounting cler& %ho shares the record &eeping responsiility for the accounts receivale susidiary ledger performs the monthly reconciliation of the susidiary ledger and the control account. 5hich statement is not true6 a. #uditors must maintain independence.  . 2 auditors attest to the integrity of the computer system. c. 2 auditing is independent of the general financial audit. d. 2 auditing can e performed y oth e-ternal and internal auditors.

0,. The fundamenta! di)erence between interna! and e-terna! audi%n& is that a. internal auditors represent the interests of the organization and e-ternal auditors represent outsiders  . internal auditors perform 2 audits and e-ternal auditors perform financial statement audits c. internal auditors focus on financial statement audits and e-ternal auditors focus on operational audits and financial statement audits d. e-ternal auditors assist internal auditors ut internal auditors cannot assist e-ternal auditors 0. 5hich statement is not correct6 a. #uditors gather evidence using tests of controls and sustantive tests.  . he most important element in determining the level of materiality is the mathematical formula. c. #uditors e-press an opinion in their audit report. d. #uditors compare evidence to estalished criteria. 31. 5hen planning the audit7 information is gathered y all of the follo%ing methods e-cept a. completing $uestionnaires  . intervie%ing management c. oserving activities d. confirming accounts receivale 33. ests of controls include a. confirming accounts receivale  . counting inventory c. completing $uestionnaires d. counting cash 3'. Control ris& is a. the proaility that the auditor %ill render an un$ualified opinion on financial statements that are materially misstated  . associated %ith the uni$ue characteristics of the usiness or industry of the client c. the li&elihood that the control structure is fla%ed ecause controls are either asent or inade$uate to prevent or detect errors in the accounts d. the ris& that auditors are %illing to ta&e that errors not detected or prevented y the control

structure %ill also not e detected y the auditor  3,. 2nherent ris&  a. e-ists ecause all control structures are fla%ed in some %ays.  . is the li&elihood that material misstatements e-ist in the financial statements of the firm. c. is associated %ith the uni$ue characteristics of the usiness or industry of the client. d. is the li&elihood that the auditor %ill not find material misstatements. 3. he financial statements of an organization reflect a set of management assertions aout the financial health of the usiness. #ll of the follo%ing descrie types of assertions e-cept a. that all of the assets and e$uities on the alance sheet e-ist  . that all employees are properly trained to carry out their assigned duties c. that all transactions on the income statement actually occurred d. that all allocated amounts such as depreciation are calculated on a systematic and rational  asis