Quiz # 4 Reviewer
INTERNAL CONTROLS
1) Upon receipt of customer’s checks in the mailroom, a
responsible employee should prepare a remittance listing that
is forwarded to the cashier. A copy of the listing should be
sent to the:
Accounts receivable bookkeeper to update the subsidiary
accounts receivable records
2) Which of the following procedures most likely would not
be a control designed to reduce the risk of errors in the billing
process?
Reconciling the control totals for sales invoices with the
accounts receivable subsidiary ledger.
3) Internal control is strengthened when the quantity of
merchandise ordered is omitted from the copy of purchase
order sent to the:
Receiving Department
4) The ultimate purpose of assessing control risk is to
contribute to the auditor’s evaluation of the risk that:
Material misstatements may exist in the financial
statements.
5) Control risk should be assessed in terms of:
Financial statements assertions
6) When assessing control risk below the maximum level, an
auditor is required to document the auditor’s:
Understanding of the entity’s control environment AND
the basis for concluding that control risk is below the
maximum level
7) Which of the following is least likely to be evidence the
auditor examines to determine whether controls are operating
effectively?
Confirmations of accounts receivable
8) Which of the following statements is correct concerning an
auditor’s assessment of control risk?
Assessing control risk may be performed concurrently
during an audit with obtaining an understanding of the
entity’s internal control.
9) Sound internal control dictates that immediately upon
receiving checks from customers by mail, a responsible
employee should:
Prepare a duplicate listing of checks received.
10) Regardless of the assessed level of control risk, an auditor
would perform some:
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Substantive tests to restrict detection risk for significant
transaction classes.
11) Reportable conditions are matters that come to an
auditor’s attention that should be communicated to an entity’s
audit committee because they represent:
Significant deficiencies in the design or operation of
internal control
12) Which of the following statements is correct concerning
and auditor’s required communication of reportable
conditions?
An auditor’s report on reportable conditions should
include a restriction on the distribution of the report
13) An auditor suspects that a client’s cashier is
misappropriating cash receipts for personal use by lapping
customer checks received in the mail. In attempting to uncover
this embezzlement scheme, the auditor most likely would
compare the:
Date checks are deposited per bank statements with the
date’s remittance credits are recorded
14) An auditor uses the knowledge provided by the
understanding of internal control and the assessed level of
control risk primarily to:
Determine the nature, timing and extent of substantive
tests for financial statements assertions
15) Management philosophy and operating style most likely
would have a significant influence on an entity’s control
environment when:
Management is dominated by one individual
16) Which of the following department most likely would
approve changes in pay rates and deductions from employee
salaries?
Human Resources/Personnel
17) During the consideration of internal control in a financial
statement audit, an auditor is not obligated to:
Search for significant deficiencies in the operation of the
internal control
18) After assessing control risk at below the maximum level,
an auditor desires to seek a further reduction in the assessed
level of control risk. At this time, the auditor would consider
whether:
Additional evidential matter that is sufficient to support a
further reduction is likely to be available
 Quiz # 4 Reviewer
INTERNAL CONTROLS
28) Which of the following controls most likely addresses the
19) To obtain evidential matter about control risk, an auditor completeness assertion for inventory?
selects tests from a variety of techniques including Receiving reports are pre-numbered and periodically
Inquiry reconciled

20) Which of the following procedures concerning accounts
receivable would an auditor most likely perform to obtain
evidential matter in support of an assessed level of control risk
below the maximum level?
Observing an entity’s employee prepare the schedule of
past due accounts receivable
21) Which of following is a control that most likely could
improve management’s ability to supervise company activities
effectively?
Establishing budgets and forecasts to identify variances
from expectations
29) In obtaining an understanding of an entity’s controls that
are relevant to the audit planning, an auditor is required to
obtain knowledge about the:
Design of the controls included in the internal control
components
30) During the consideration of internal control in a financial
statement audit, an auditor is not obligated to:
Search for significant deficiencies in the operation of the
internal control

22) In planning an audit, the auditor’s knowledge about the

design of relevant controls should be used to:
Identify the types of potential misstatements that could
occur

23) The objective of test of details of transactions performed

as tests of control is to
Evaluate whether internal controls operated effectively

24) Tracing shipping documents to pre-numbered sales

invoices provides evidence that
Shipments to customers were properly invoiced

25) Which of the following controls most likely would reduce

the risk of diversion of customer receipts by an entity’s
employees?
A bank lockbox system

26) Which of the following audit procedures would an auditor

most likely perform to test controls relating to management’s
assertion concerning the completeness of sales transactions?
Inspect the entity’s reports of pre-numbered shipping
documents that have not been recorded in the sales journal

27) An auditor’s letter issued on reportable conditions relating

to an entity’s internal control observed during a financial
statement audit should:
Indicate that the audit’s purpose was to report on the
financial statements and not to provide assurance on
internal control.

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