PART 1C
Management Controls
272 Questions
groups.
B. Review of data output by data control groups.
C. The controller.
D. The treasurer.
A. Audit risk.
B. Detection risk.
C. Sampling risk.
D. Inherent risk.
A. Performance reviews.
[43] Source: Publisher
According to AU 312, Audit Risk and Materiality in
Conducting an Audit, the concepts of audit risk and
materiality are interrelated and must be considered together
by the auditor. Which of the following is true?
B. Information processing.
C. Physical controls.
D. An internal audit function.
A. AR = IR x CR x AP x TD.
B. AR = IR + CR + AP + TD.
C. AR = IR + CR - (AP + TD).
D. AR = IR + CR - (AP x TD).
A. External auditors.
B. Accounts receivable staff.
C. Internal auditors.
D. Accounting management.
D. Subsequent events.
[53] Source: CIA 1195 I-67
Auditors regularly evaluate controls. Which of the following
best describes the concept of control as recognized by
internal auditors?
A. Industry conditions.
B. Operating characteristics.
C. Management's characteristics.
B. Commits to unduly aggressive forecasts.
D. Controls.
C. Has an excessive interest in increasing the entity's
stock price through use of unduly aggressive
accounting practices.
A. Segregation of duties.
B. Hiring practices.
C. Training programs.
D. Performance evaluations.
1. Volume of transactions.
2. Degree of system integration.
3. Years since last audit.
4. Significant management turnover.
5. (Dollar) value of assets at risk.
6. Average value per transaction.
7. Results of last audit.
Factors that best define the materiality of audit risk are
A. 1 through 7
B. 2, 4, and 7
A. Distribution of paychecks.
C. 1, 5, and 6
B. Authorization of overtime.
D. 3, 4, and 6
C. Authorization of additions and deletions from the
payroll.
[77] Source: CIA 0592 II-17
An adequate system of internal controls is most likely to
detect a fraud perpetrated by a
B. Single employee.
C. Group of managers in collusion.
D. Single manager.
A. Directive controls.
C. Use armed guards to escort the movement of the
trailers from the plant to the scrap yard.
B. Preventive controls.
C. Detective controls.
D. Output controls.
[83] Source: CIA 1191 I-12
The treasurer makes disbursements by check and
reconciles the monthly bank statements to accounting
records. Which of the following best describes the control
impact of this arrangement?
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D. Internal auditing.
[86] Source: CIA 1192 II-16
To minimize the risk that agents in the purchasing
department will use their positions for personal gain, the
organization should
A. Preventive.
B. Corrective.
C. Detective.
D. Directive.
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rates.
[94] Source: CIA 0589 II-10
Which of the following observations, made during the
preliminary survey of a local department store's
disbursement cycle, reflects a control strength?
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entry system.
D. III only.
[103] Source: Publisher
A small entity may use less formal means to ensure that
internal control objectives are achieved. For example,
extensive accounting procedures, sophisticated accounting
records, or formal controls are least likely to be needed if
determined.
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A. Figure 11
B. Figure 12
D. Figure 14
[111] Source: CMA 1281 5-15
(Refer to Figures 15 through 18.) The symbol employed to
represent the printing of the employees' paychecks by the
computer is
A. Figure 15
B. Figure 16
C. Figure 17
D. Figure 18
A. Figure 19
B. Figure 20
C. Figure 21
D. Figure 22
A. Figure 23
B. Figure 24
D. Figure 26
C. Figure 25
magnetic tape is
A. Figure 27
C. Figure 29
B. Figure 28
D. Figure 30
A. Figure 31
[110] Source: CMA 1281 5-14
(Refer to Figures 11 through 14.) The symbol employed to
determine if an employee's wages are above or below the
maximum limit for FICA taxes is
B. Figure 32
C. Figure 33
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D. Figure 34
A. Figure 35
[121] Source: CMA 1287 5-10
(Refers to Fact Pattern #2)
(Refer to Figure 40.) The appropriate description that
should be placed in symbol D would be
B. Figure 36
C. Figure 37
D. Figure 38
D. Proof report.
C. It creates goodwill.
D. Batch processing.
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A. Competency.
B. Confidentiality.
C. Integrity.
D. Objectivity.
A. Advertise.
B. Encroach on the practice of another financial
manager/management accountant.
C. Disclose confidential information unless authorized
or legally obligated.
A. Competency.
D. Accept other employment while serving as a
financial manager/management accountant.
B. Confidentiality.
C. Integrity.
D. Objectivity.
[131] Source: Publisher
Lauryn is in charge of auditing Palace Co. She determines
Palace has a control risk of 15%, there is an inherent risk
of 30%, and she has an acceptable detection risk of 50%.
What is the risk of a material misstatement of an assertion?
A. 2.25%
C. 7.5%
B. 4.5%
D. 15%
A. Competency.
B. 12%
B. Confidentiality.
C. 30%
C. Integrity.
D. 333%
D. Objectivity.
[133] Source: Publisher
The auditors of Maut Inc. have discovered that the
company has no effective internal controls. The auditors
have set detection risk at 5% and inherent risk at 90%.
What is the allowable audit risk according to the audit risk
model?
A. 0%
B. 4.5%
C. 5%
D. 5.6%
[134] Source: Publisher
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Courtney and Kim are using the audit risk model on their
audit assignment. They have set inherent risk at 90%,
control risk at 90%, the allowable risk of incorrect
acceptance associated with a test of details at 50%, and
the risk that analytical procedures and other substantive
tests will fail to detect misstatements at 9%. What is the
allowable audit risk?
A. 3.65%
B. 4.50%
C. 7.29%
D. 40.5%
[139] Source: CIA 1190 II-47
An auditor discovers some material inefficiencies in a
purchasing function. The purchasing manager happens to
be the auditor's next-door neighbor and best friend. In
accordance with the Code of Ethics, the auditor should
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is to
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activities to be audited.
B. Supervision is primarily exercised at the final
review stage of an audit to ensure the accuracy of the
audit report.
A. A procedure.
B. A system.
C. An account.
A. Preliminary survey.
B. Staff selection.
C. Audit program preparation.
A. A flowcharting approach.
B. A questionnaire approach.
C. A matrix approach.
D. A detailed narrative approach.
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A. Preliminary survey.
A. Positive confirmation of note receivable balances
with the debtors.
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A. Receiving reports.
B. Purchase orders.
C. Canceled checks.
D. Paid vendor invoices.
[170] Source: CIA 1192 I-47
If an internal auditor finds that no corrective action has
been taken on a prior audit finding that is still valid, the
Standards state that the internal auditor should
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A. Purpose.
A. A large percentage of net income.
B. Scope.
B. An unverified routine transaction.
C. Criteria.
C. An unusual transaction for the company.
D. Condition.
D. A related party.
[184] Source: CIA 0590 II-33
The scope statement of an internal audit report should
C. Significance of deficiencies.
D. Engagement plan.
A. Inspection of documents.
B. Observation.
C. Inquiry.
D. Analytical review.
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A. Criteria.
C. To the point and free of unnecessary detail.
B. Condition.
D. Factual, unbiased, and free from distortion.
C. Effect.
[191] Source: CIA 0588 II-43
Audit report content and format may vary; but according to
the standards, which of the following is a necessary
element?
D. Opinion.
[196] Source: CIA 0588 II-45
To enhance communications with top management, some
internal auditing departments include a summary report with
each written audit report. What information should be
included in such a summary report?
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A. To resolve conflicts.
B. To discuss the findings.
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A. A cell.
B. A macro.
C. A template.
D. A screen.
A. Spreadsheet software.
[214] Source: CMA 0695 4-26
In relation to nonfinancial internal audits, the Treadway
Commission recommended
D. Database software.
[210] Source: CIA 0594 III-10
Generalized Audit Software (GAS) is designed to allow
auditors to
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legal requirements.
B. Compare remittance advices and duplicate deposit
slips to postings in the cash receipts journal and the
accounts receivable subsidiary ledger cards.
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personnel.
A. Direct evidence.
B. Circumstantial evidence.
C. Corroborative evidence.
D. Conclusive evidence.
D. Safeguarding of assets.
[229] Source: CMA 0696 4-30
To determine the reasonableness of financial data, auditors
use analytical reviews. Which one of the following is least
likely to be considered an analytical reasonableness
review?
A. Trend analysis.
B. Physical inventories.
D. Allow a suspect to return to work after the
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A. Inform.
B. Get results.
C. Assign responsibility.
D. Persuade.
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B. II only.
C. II and III only.
D. I, II, III.
A. Sufficiency.
B. Competence.
C. Relevance.
D. Usefulness.
[Fact Pattern #3]
The director of internal auditing is reviewing some of the
basic concepts inherent in the performance of an audit with
three auditors who are on a rotation assignment. After six
months in the department, they will move back to line
positions. Each of them has fairly extensive organizational
experience and is on a fast track to a high-level
management line position. To develop their analytical
decision-making abilities, the director pulls some old audit
working papers, holding back the review notes and clearing
comments. The director asks the team to indicate the
evidential criteria that are violated.
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C. Preliminary survey.
D. Audit program.
A. Sufficiency.
B. A review of the purchased company's procedures
for acceptance of waste material and comparison
with legal requirements.
B. Competency.
C. Relevance.
A. Sufficiency.
C. A review of operations as requested by the audit
committee to determine whether the operations
comply with audit committee and organizational
policies.
B. Competency.
C. Relevance.
D. No criteria are violated.
A. Sufficiency.
B. Competency.
C. Relevance.
D. No criteria are violated.
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A. Sequence of message.
B. Nature of the audience.
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A. Competence.
B. Legality.
C. Objectivity.
D. Confidentiality.
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unfavorable.
B. Develop his/her professional proficiency on a
continual basis.
C. Discuss ethical conflicts and possible courses of
action with an unbiased counselor.
D. Discuss, with subordinates, their responsibilities
regarding the disclosure of information about the firm.
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PART 1C
Management Controls
ANSWERS
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financial officer.
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subsidiary file with the master file may detect and lead
to the correction of errors, but the control does not
prevent errors.
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control.
making payment.
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period."
Answer (D) is incorrect because the scope of the
audit cannot be formally defined until the final report.
Interim findings may alter the scope during the audit.
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day.
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amounts.
[227] Source: CMA 0696 4-28
[230] Source: CIA 0593 I-40
Answer (A) is incorrect because direct evidence is
proof without presumption or inference.
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