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Test%20Questions%20Chapter%2071 - Chapter 7 Internal...

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Chapter 7 Internal Control True/False Questions 1. Internal control is concerned with the reliability of financial information. Answer: True Difficulty: Easy 2. The Foreign Corrupt Practices Act prohibits bribes to foreign corporate officials to obtain business. Answer: False Difficulty: Hard 3. Incompatible duties exist when an employee is in a position to perpetrate and conceal errors or fraud. Answer: True Difficulty: Easy 4. Internal auditors should preferably report to the chief accounting officer of the company. Answer: False Difficulty: Medium 5. Well-designed internal control will prevent all fraud by top management. Answer: False Difficulty: Easy 6. CPA firms may use written narratives to describe internal control in their audit working papers. Answer: True Difficulty: Easy 7. The auditors' communication of internal control significant deficiencies should be addressed only to senior management of the company. Answer: False Difficulty: Easy 8. If the auditors' assessment of the design of internal control reveals that it cannot be relied upon, the auditors are not required to prepare any documentation of internal control for their working papers. Answer: False Difficulty: Medium 100 Whittington, Principles of Auditing, Fifteenth Edition
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Chapter 7 Internal Control 9. The relatively low number of types of transactions incurred by small firms makes the segregation of duties impossible. Answer: False Difficulty: Easy 10. In a financial statement audit, CPAs are required to assess the operating effectiveness of most significant accounting oriented controls. Answer: False Difficulty: Medium Multiple Choice Questions 11. Which of the following matters would an auditor most likely consider to be a significant deficiency to be communicated to the audit committee? A) Management's failure to renegotiate unfavorable long-term purchase commitments. B) Recurring operating losses that may indicate going concern problems. C) Evidence of a lack of objectivity by those responsible for accounting decisions. D) Management's current plans to reduce its ownership equity in the entity. Answer: C Difficulty: Medium Source: AICPA 12. In assessing the objectivity of a client's internal auditors, the CPA would be most likely to consider internal auditor:
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