AA C Internal control

Written by Fahad Mirza (ACCA)

ACCA · Audit and Assurance · 10 questions

Name: ____________________ Date: ____________

Which of these is a component of internal control?
- A The audit fee
- B The audit opinion
- C The control environment
- D The tax rate
Which control activity reduces the risk of fraud by splitting a task between two people?
- A A larger budget
- B Analytical review
- C Segregation of duties
- D Rotation of audit partners
Which is a limitation of internal control?
- A Controls never fail
- B Controls remove all risk
- C Management override
- D Controls are free
What is a walkthrough test?
- A Following one transaction through the system to confirm understanding
- B Writing the report
- C Confirming bank balances
- D Counting inventory
What is the purpose of tests of controls?
- A To check that controls operated effectively during the period
- B To find the profit
- C To calculate tax
- D To value inventory
To whom should significant deficiencies in internal control be communicated in writing?
- A Those charged with governance and management
- B Competitors
- C The tax authority
- D The public
Which statement about internal audit is correct?
- A It is the same as external audit
- B It is always required by law
- C It is independent of the entity and reports to the members on the financial statements
- D It is part of the entity and evaluates risk management, control and governance
Which of these is a typical internal audit assignment?
- A The opinion on the financial statements
- B A value for money audit
- C Setting the audit fee
- D Appointing the directors
What is a risk of outsourcing the internal audit function to the entity's external auditor?
- A It removes the need for an audit committee
- B It is cheaper
- C It may threaten the independence of the external auditor
- D It guarantees better results
Which recommendation best addresses a deficiency in which one person raises and approves purchase orders?
- A Remove all approval limits
- B Pay suppliers earlier
- C Separate the roles of raising and approving purchase orders
- D Reduce the number of suppliers

Answer key

1. C, 2. C, 3. C, 4. A, 5. A, 6. A, 7. D, 8. B, 9. C, 10. C

The components are control environment, risk assessment, information system, control activities and monitoring.
No one person controls a transaction from start to finish.
Collusion, human error and cost are other limitations.
It checks the auditor's documented understanding.
If controls are effective, substantive work can be reduced.
The communication includes the deficiency, its effects and recommendations.
External audit gives an opinion on the financial statements.
Operational, compliance, IT and fraud work are also typical.
The same firm would be reviewing its own work.
Segregation of duties reduces the risk of error and fraud.