1. The employee in charge of authorizing credit to the

1. The employee in charge of authorizing credit to the company’s customers does not fully understand the concept of credit risk. This lack of knowledge would constitute:

A) a deficiency in operation of internal controls.

B) a deficiency in design of internal controls.

C) a deficiency of management.

D) not constitute a deficiency.

2. When assessing whether the financial statements are auditable, the auditor must consider:

A) that the integrity of management and the adequacy of accounting records are the two primary factors determining auditability.

B) that the integrity of management and the adequacy of risk management are the two primary factors determining auditability.

C) that if all of the transaction information is available only in electronic form without a visible audit trail, the company cannot be audited.

D) the control risk before determining if the entity is auditable.

3. Once auditors determine that entity level controls are designed and placed in the operation they:

A) make a preliminary assessment for each transaction-related audit objective for each major type of transaction.

B) make a preliminary assessment of control risk.

C) obtain an understanding of the design and implementation of internal control.

D) prepare audit documentation in order to opine on the company’s internal control system.

4. Which of the following is the correct definition of “control deficiency”?

A) A control deficiency exists if the design or operation of controls does not permit company personnel to prevent or detect misstatements on a timely basis.

B) A control deficiency exists if one or more deficiencies exist that adversely affect a company’s ability to prepare external financial statements reliably.

C) A control deficiency exists if the design or operation of controls results in a more than remote likelihood that controls will not prevent or detect misstatements.

D) A control deficiency exists if the design or operation of controls results in a more than probable likelihood that controls will prevent or detect misstatements.

5. Which of the following deficiency exists if a necessary control is missing or not properly formulated?

A) Control

B) Significant

C) Design

D) Operating