Based on the uploaded file (Chapter 11, “Assessing Control Risk and Reporting on
Internal Controls”), here are 30 multiple-choice questions (MCQs) along with
their correct answers.
Multiple-Choice Questions (MCQs)
1. What is the first step in understanding internal control and assessing
control risk?
a) Perform substantive tests
b) Obtain and document understanding of internal control design and operation
c) Evaluate control deficiencies
d) Issue an internal control report
Answer: b)
2. Which document is NOT commonly used to obtain and document
understanding of internal control?
a) Flowcharts
b) Narratives
c) Control deficiency reports
d) Internal control questionnaires
Answer: c)
3. What is the purpose of a walkthrough in internal control assessment?
a) Simplify the reporting process
b) Ensure internal controls are bypassed
c) Trace transactions through the accounting system
d) Consolidate financial statements
Answer: c)
4. What are auditors required to perform at least once for each major class
of transactions?
a) Control risk matrix
b) System walkthrough
c) Fraud detection procedures
d) Substantive tests
Answer: b)
5. What is an internal control flowchart used for?
a) Identifying audit misstatements
b) Diagramming the flow of documents within an organization
c) Listing the responsibilities of auditors
d) Compiling audit evidence
Answer: b)
6. An internal control questionnaire primarily helps auditors to:
a) Approve transactions
b) Identify inadequate controls
c) Eliminate audit risks
d) Track operational inefficiencies
Answer: b)
7. Control risk is a measure of the auditor’s expectation that internal
controls will:
a) Increase audit complexity
b) Prevent or detect material misstatements
c) Eliminate all risks of misstatements
d) Consolidate audit objectives
Answer: b)
8. What tool helps auditors organize control risk assessments at the
transaction level?
a) Risk register
b) Control risk matrix
c) Audit sampling table
d) Internal control checklist
Answer: b)
9. What is a “control deficiency”?
a) A minor error in audit documentation
b) A design or operational failure of a control
c) An immaterial transaction misstatement
d) A complete absence of controls
Answer: b)
10. Which of the following is considered the most severe level of
internal control absence?
a) Control deficiency
b) Material weakness
c) Significant deficiency
d) Reporting deficiency
Answer: b)
11. Which of the following is NOT a key audit objective linked to
internal control?
a) Occurrence
b) Completeness
c) Summarization
d) Timeliness
Answer: d)
12. What step involves identifying the absence of key controls in the
control assessment process?
a) Testing operational effectiveness
b) Identifying deficiencies
c) Performing walkthroughs
d) Evaluating fraud risks
Answer: b)
13. What type of report is issued when material weaknesses are
identified in internal control?
a) Unqualified audit report
b) Adverse audit report
c) Qualified audit report
d) Disclaimer of opinion
Answer: b)
14. What is a significant deficiency in internal control?
a) A deficiency that does not affect financial statement reliability
b) A deficiency that adversely affects reliable reporting
c) A material misstatement in the financial statements
d) A minor lapse in operational controls
Answer: b)
15. Which control activity involves separating custody of assets from
record-keeping?
a) Independent verification
b) Separation of duties
c) Proper authorization
d) Risk assessment
Answer: b)
16. Physical controls over assets are primarily designed to:
a) Reduce accounting errors
b) Safeguard assets from misuse
c) Streamline transaction approvals
d) Improve employee productivity
Answer: b)
17. Which method is NOT used by auditors to evaluate internal
control implementation?
a) System walkthrough
b) Client personnel inquiries
c) Observation of activities
d) Confirming financial statements with external parties
Answer: d)
18. Which document describes the origin, processing, and disposition
of records in internal control?
a) Narrative
b) Flowchart
c) Risk matrix
d) Audit program
Answer: a)
19. What is the key purpose of an independent check?
a) Streamline audits
b) Verify the accuracy of other controls
c) Detect fraud automatically
d) Conduct daily reconciliations
Answer: b)
20. What should auditors do after identifying existing controls?
a) Decide planned detection risk
b) Assess control risk levels
c) Design tests of controls
d) Identify control deficiencies
Answer: d)
Would you like more MCQs or any specific topic-related ones?
