quiz 3 - 1. Question: When a service organization provides...

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1. Question: When a service organization provides services that affect the initiation, execution, processing, or reporting of a user company’s transactions, those services are: Your Answer: Considered to be part of the user company’s information system. CORREC T Considered to be part of the user company’s control environment. Considered to be part of the user company’s control activities. Not considered to be part of the user company’s internal control. Instructor Explanation: Choice “a” is correct. When a service organization provides services that affect the initiation, execution, processing, or reporting of a user company’s transactions, those services are considered to be part of the user company’s information system. Choices “b”, “c”, and “d” are incorrect per the above explanation. Points Received: 10 of 10 Comments: 2. Question: An auditor determines that there is a high level of control risk surrounding the revenue cycle. Which situation is most likely to have given rise to this assessment? Your Answer: A related party sale is identified which has not been properly disclosed in the financial statements. The auditor discovers a sale that was recorded in the current year although title did not pass until the subsequent year. INCORRECT The sales manager does not enforce the client's stated policies regarding authorization and approval of sales transactions. CORRECT ANSWER The sales clerk is a newly hired, recent college graduate, with no previous experience in sales. Instructor Explanation: Choice "c" is correct. Management override of internal control policies and procedures might cause the auditor to assess control risk as high. Choices "a" and "b" are incorrect. Identifying an omission or error in the financial statements would certainly cause the auditor to consider whether controls were operating effectively, but a single error alone is not likely to cause the auditor to assess control risk
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as high. Choice "d" is incorrect. The sales clerk's inexperience alone is not likely to cause the auditor to assess control risk as high. Points Received: 0 of 10 Comments: 3. Question: Which of the following is not a possible reason why a properly designed system of internal control may fail to prevent or detect fraud? Your Answer: Collusion by two or more individuals may be used to circumvent controls. INCORRECT Human error may result in an inappropriate application of controls. Inadequate segregation of duties may allow one person to both perpetrate and conceal fraudulent activity. CORRECT ANSWER Management may override controls through its attitude and actions. Instructor Explanation: Choice "c" is correct. Inadequate segregation of duties implies that the system of internal control was not properly designed. Choice "a" is incorrect. Collusion can be used to circumvent
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quiz 3 - 1. Question: When a service organization provides...

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