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Oup3 TA

The document contains a test on internal control concepts, including the importance of independent audits, types of audit evidence, and control activities. It outlines various questions regarding auditing principles, types of control activities, and responsibilities related to internal controls. Additionally, it provides examples of control activities and scenarios for testing control effectiveness.

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Lê Thị Anh Thi
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4 views6 pages

Oup3 TA

The document contains a test on internal control concepts, including the importance of independent audits, types of audit evidence, and control activities. It outlines various questions regarding auditing principles, types of control activities, and responsibilities related to internal controls. Additionally, it provides examples of control activities and scenarios for testing control effectiveness.

Uploaded by

Lê Thị Anh Thi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Name: Lê Thị Anh Thi Class: L35

Group: 3 Date: 12/10/2024

TEST 2: INTERNAL CONTROL

1. BEST ANSWER:
1. An independent audit is important to readers of financial statements because it
a) Provides a measure of management's stewardship function.
b) Measures and communicates the financial data included in financial statements.
c) Objectively examines and reports on management's financial statements.
d) Reports on the accuracy of information in the financial statements.
2. The evidence available to auditor is _______ in nature, rather _______ in
nature.
a) pervasive, conclusive
b) Conclusive, pervasive
c) limited, unlimited
d) None of the above
3. Compliance with the Standard of Auditing is the responsibility of a)
Management
b) Those charged with governance
c) Auditor
d) Audit committee
4. An auditor is required to determine the ____ of his audit procedures according
to the requirements of Standards of Auditing.
a) Conduct
b) Nature ,timing and extent
c) Limitation
d) Planning
5. The main object of an audit is
a) Expression of opinion
b) Detection and Prevention of fraud and error
c) Both (1) and (2)
d) Depends on the type of Business.
6. The audit process is
a) special application of the scientific method of inquiry.
b) Regulated by the PICPA .
c) The only service a CPA is allowed to perform by law.
d) Performed only by CPAs
7. Appropriateness means _______ of audit evidence.
a) Quantity.
b) Quality.
c) Appropriateness.
d) Sufficient.
8. Professional judgment means a judgment taken by the auditor out of his
______ in an audit situation
a) Past experience.
b) Relation with the management
c) Professional experience.
d) Work experience.
9. A sale of Rs. 50.000 to A was entered as a sale to B. This is an example of _
a) Error of omission.
b) Error of commission.
c) Compensating error.
d) Error of principle.
10. Goods sent on approval basis’ have been recorded as ‘Credit sales’. This is an
example of……………………..
a) Error of principle.
b) Error of commission.
c) Error of omission.
d) Error of duplication
11. What is the main objectives of Auditing?
a) To give an opinion as to the truth and fairness of Financial statement.
b) To finds errors.
c) To help taxation departments.
d) To help customers.
12. Meaning of Interim Audit:
a) Audit of 12 months
b) Audit for more than 12 months.
c) Audit for less than 12 months.
d) Audit for long period.
13. Internal Audit is conducted by:
a) Employees of an Organization.
b) Customers
c) Government
d) Employees of other Organization.
14. Audit Evidence is obtained by:
a) Inspection.
b) Observation.
c) Inquiry and Confirmation.
d) All of the above.
15. Which Audit is conducted to check the cost records of the company?
a) Financial Audit.
b) Operational Audit.
c) Management Audit.
d) Cost Audit

2. DESCRIBE FOUR DIFFERENT TYPES OF CONTROL ACTIVITIES


AND, FOR EACH TYPE, PROVIDE AN EXAMPLE CONTROL A COMPANY
MAY IMPLEMENT.

1. Segregation of duties – assignment of roles or responsibilities to ensure the tasks of


authorising and recording transactions and maintaining custody of assets are carried
out by different people, thereby reducing the risk of fraud and error occurring.
Example: In the purchasing process, a purchasing officer is responsible for creating a
purchase order, a warehouse employee receives the goods and confirms their arrival,
and the accounting department records the payment transaction after the finance
manager approves the payment order.
2. Information processing – controls including application and general IT controls,
which ensure the completeness, accuracy, and authorization of information being
processed.
Example: Requiring system-generated reports to verify the integrity of all journal
entries processed in a day.
3. Authorisation – approval of transactions by a suitably responsible official to ensure
transactions are genuine.
Example: Before a major expense such as the purchase of office equipment is made,
the purchase request must be approved by the department manager. The finance
director will then review and sign off to ensure that the purchase is valid.
4. Physical controls – restricting access to physical assets as well as computer
programs and data files, thereby reducing the risk of theft.
Example: Restricting access to the company's inventory warehouse to authorized
personnel using keycard entry.
5. Performance reviews – comparison or review of the performance of the business by
looking at areas such as budget versus actual results.
Example: The sales manager holds monthly meetings to review actual sales against
the budgeted sales target. If sales are lower this month than the target or compared to
the same period last year, the manager analyzes the reasons (such as decreased
demand, competing products) and suggests corrective actions, such as adjusting sales
strategies or implementing new promotions to improve results next month.
3. WHICH CAN BE TESTED BY PLACING A DUMMY SALES ORDER FOR
A LARGE QUANTITY OF GOODS INTO THE SYSTEM? SELECT ALL
THAT APPLY.

Control
The inventory system is automatically updated to reflect that inventory has
X
been allocated to a sales order
The system will flag if there is insufficient inventory to fulfill the order X
When inventory falls to a minimum level a purchase order is automatically
X
created and sent to the purchasing manager for authorization
The purchase order is automatically sent electronically to the approved
X
supplier for that item

As all of the controls stated are computerized controls, a dummy order can be used to
test them.

4. PLEASE CHOOSE TRUE/ FALSE FOR THE FOLLOWING CASES.

4.1.

Control activities Control objectives True False


To ensure that goods and
Credit limits are checked
services are only supplied to
before sales orders are X
customers with good credit
accepted (Option A)
ratings.
All sales orders are based To ensure that goods and
on authorised price services are provided at X
lists (Option B) authorised prices
Sales invoices are To ensure that all goods and X
reconciled to the daily services sold are correctly
sales report (Option C) invoiced
The aged-debt listing is
To ensure that overdue debts
reviewed by the finance
are followed up on a timely X
director on a monthly
basis.
basis (Option D)

4.2. B Co maintains perpetual inventory records. Which of the following control


activities would contribute to the auditor's confidence that inventory recorded in the
financial statements exists?

1. Procedures to identify obsolete and damaged inventory


2. Physical safeguards to protect inventory from theft
3. Sequential numbering of goods dispatched notes
4. Reconciliation of inventory records to results of inventory counts
A. (1) and (2)
B. (2) and (4)
C. (2) and (3)
D. (1) and (3)

Control
Control objectives True False
activities
To ensure that all inventory
Statement 1 X
movements are recorded (existed)
To ensure that inventory included on
Statement 2 X
the statement of financial position
To ensure that all inventory
Statement 3 X
movements are recorded (existed)
To ensure that all purchases and sales
Statement 4 of inventory have been recorded in X
the accounting system.

5.

5.1. Who is ultimately responsible for a company's system of internal controls?


Why?

A. External auditors
B. Board of directors
C. Internal auditors
D. Audit committee
5.2. Which of the following statements about the nature and extent of tests of
controls are true?

1. Inquiry alone is not sufficient to test the operating effectiveness of controls


2. The auditor must perform test of controls if substantive procedures alone
cannot provide sufficient appropriate audit evidence
A. Nether (1) nor (2)
B. (1) only
C. (2) only
D. Both (1) and (2)

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