Rachel N.

Davies (091257)
Accounting 406 Section 1
Auditing II Midterm Test Answers

Direction: Please answer the 30 midterm exam questions below and send email
to testfocus12@gmail.com Note: the test worth 30points; 1pt. each. Underline
the best answer(s) of your choice. Email of midterm is to be send From
Wednesday 4PM to Thursday 4PM. (June 18-19). Email after this period will not
be allowed.


1. Which of the following phrases is found in the definition of internal
control?
a. Objectiveness and consistency in financial re porting.
b. Consistency and effectiveness of operations.
c. Effectiveness and efficiency of operations.
d. Reliability and consistency of financial reporting.

2. Which one of the following is a factor of control environment as a
component of internal control?
a. Changes in the organizations regulatory or operating environment.
b. Human resource policies and practices of management.
c. Information processing in the control environment.
d. Separate evaluations of control environment activities.

3. All of the following are components of internal control except
a. Information and communication
b. Monitoring
c. Reliability of financial reporting
d. Risk assessment

4. One component of internal control is risk assessment. Which one of the
following is least likely to occur regarding risk assessment?
a. Changes in the organizations regulatory or operating environment.
b. Human resource policies and practices of management.
c. Information processing in the control environment.
d. Separate evaluations of control environment activities.
5. From the auditors point of view the following factors might be indicative
of increased financial reporting risk for an organization except:
a. Rapid growth of the organization.
b. Adoption of new accounting principles or changing accounting
principles.
c. Assignment of authority and responsibility.
d. Implementation of a new or modified information system.

6. One of the elements of internal control is Control activities. Which of the
following is a factor of control activities?
a. Changes in the organizations regulatory or operating environment.
b. Human resource policies and practices of management.
c. Information processing in the control environment.
d. Separate evaluations of control environment activities.

7. A sufficient understanding of internal control is to be obtained to plan the
audit and to determine the nature, timing, and extent of the tests to be
performed. This standard is:
a. Standard of reporting.
b. Standard of fieldwork.
c. General standards
d. Professional standard.

8. Monitoring is one element of internal control. Which one of the following is
least likely to occur for monitoring:
a. Maintaining the custody over assets.
b. Reviewing organization ethic, integrity and responsibility
c. Reviewing management reports and consideration of policies
d. Reviewing the reasonableness of management reports

9. In every engagement the auditors must obtain an understanding of internal
control sufficient to plan the audit. This understanding should include
knowledge about the design of relevant controls and whether they have
been placed in operation by the entity. In planning the audit, that
knowledge is used to:
a. Segregate duties within the organization
b. Identify types of potential misstatements.
c. Review the reasonableness of transactions.
d. Maintain the custody over the organization operations.

10. An organizations accounting information system consists of the methods
and records established to record, process, summarize, and report an
entitys transactions and to maintain accountability for the related assets,
liabilities, and equity. Accordingly, an accounting information system
should:
a. Identify types of potential misstatements
b. Consider factors that affect the risk of material misstatement
c. Identify and record all valid transactions
d. Design substantive tests.

11. In obtaining an understanding of the clients accounting information
system and the related control activities, auditors generally find it useful to
divide the control system into its major:
a. Transaction cycle.
b. Accounting cycle
c. Processing cycle
d. Control cycle

12. While obtaining an understanding of internal control, the auditors may
also obtain evidence about the operating effectiveness of various controls.
Operating effectiveness of the control deals with which of the following?
a. How a control is designed.
b. Segregate duties within the organization
c. How a control is applied.
d. Identify types of potential misstatements.

13. The traditional method of describing internal control is to fill in
standardized:
a. Internal control form.
b. Internal control walk-through form.
c. Internal control flow chart.
d. Internal control questionnaire.

14. The audit procedures used to test the effectiveness of internal control
include all of the following except:
a. Inquires of appropriate client personnel.
b. Performance of the controls.
c. Application of control activities.
d. Observation of the application of controls.

15. An audit test that address the accuracy of financial statement amounts is:
a. Substantive test.
b. Trial test
c. Test of controls.
d. Substantial test.

16. If the independent auditors conclude that the internal auditors work is
relevant and that it would be efficient to consider it, they assess the----------
------------------and--------------------------of the internal audit staff, and
evaluate the quality of the work.
a. Competence and consistency.
b. Objectivity and techniques
c. Competence and objectivity.
d. Techniques and competence.

17. Which one of following would be least likely to be considered an objective
of internal control?
a. Checking the accuracy and reliability of accounting data.
b. Encouraging the adherence to managerial policies.
c. Detecting management fraud.
d. Safeguarding assets.

18. When a CPA decides that the work performed by internal auditors may
have an effect on the nature, timing, and extent of the CPAs procedures,
the CPA should:
a. Consider the organization level to which the internal auditors report
the results of their work.
b. Review the internal auditors work.
c. Consider the qualifications of the internal audit staff.
d. Review the training program of the internal audit staff.
19. Effective internal control in a small company that has an insufficient
number of employees to permit proper separation of responsibilities can be
improved by:
a. Employment of temporary personnel to aid in the separation of duties.
b. Direct participation by the owner in key recordkeeping and control
activities.
c. Delegation to each employee of full, clear-cut responsibility for a separate
major transaction cycle.
d. Engaging a CPA to perform monthly write-up work.

20. Of the following statements about internal control, which one is not valid?
a. No one person should be responsible for the custody and the recording
of an asset.
b. Transactions must be properly authorized before such transactions are
processed.
c. Because of the cost-benefit relationship, a client may apply controls on
a test basis.
d. Controls reasonably ensure that collusion among employees cannot
occur.

21. Proper segregation of functional responsibilities calls for separation of the:
a. Authorization, recordkeeping, and custodial functions.
b. Receiving, Shipping, and custodial function.
c. Authorization, execution, and payment functions.
d. Authorization, approval, and execution functions.

22. Computer programs designed to perform a specific data processing task,
such as payroll processing, statement of accounts processing and voucher
processing is termed as:
a. Operating system
b. System software
c. Application software
d. Batch process software


23. Computer systems differ as to their characteristics. A computer system,
regardless of its size, may possess one or more of the following elements
except:
a. Window processing.
b. Batch processing.
c. End users computing.
d. Computer networks

24. In a computer system a master file for example of accounts receivable is an
application data file, maintained by the accounts receivable unit that
contains customer account activity for a period of time and Information
about each customer is found within:
a. Batch processing.
b. Application software.
c. Database storage.
d. Online capabilities.

25. In a computer environment one method used by internal and external
auditors to test and monitor controls in data processing applications is
termed as:
a. integrated test facility
b. integrated test control
c. integrated test technique
d. integrated test application

26. When the clients computer system is relatively simple and produces hard-
copy documents, records, the auditors may decide that it is efficient to
access control risk at, or near, the maximum and bypass the computer.
Using this approach, the auditors will test transactions and balances
manually. This technique is termed as:
a. Auditing around the computer.
b. Auditing near the computer.
c. Auditing at the computer.
d. Auditing along the computer.


27. One application of computer audit software is to verify the reliability of the
clients computer programs through a process termed as:
a. Sequence simulation.
b. Parallel simulation.
c. Selective simulation.
d. Audit simulation.

28. For substantive tests audit software may be used to rearrange the data in a
format more useful to the auditors, compare the data to other files, make
computations, and select random samples. The application of this nature
include all of the following except:
a. Comparing data on separate files.
b. Selecting audit samples.
c. Rearranging data and performing analyses.
d. Self-checking separate files.

29. The auditors have sampled 50 accounts from a population of 1,000 account
receivable. The sample items have a mean book value of $200 and a mean
audited value of $203. The book value in the population is $198,000. What
is the estimated audited value of the population using the mean-per-unit
method?
a. $198,000.
b. $200,000.
c. $203,000.
d. $201,000.

30. Using the same facts as in question 36, what is the estimated audited value
of the population using the difference method?
a. $198,000.
b. $200,000.
c. $203,000.
d. $201,000.