Question # 1
Given the information below, which control would be the lowest priority?
Asset$Amount at RiskCost of Control | | A. AssetA $ 150,000$15,000
| | B. Asset B$6,000$ 2,500
| | C. Asset C$2,000,000$50,000
| | D. Asset D$500,000$20,000 |
B. Asset B$6,000$ 2,500
Explanation:
How to Prioritize Controls Based on Cost and Risk:
The priority of a control is based on its cost-effectiveness. Controls that protect assets with higher risk exposure relative to the cost of the control should be prioritized. The formula to calculate cost-effectiveness is: Cost- Effectiveness=Cost of ControlAsset Amount at Risk\text{Cost-Effectiveness} = \frac{\text{Cost of Control}}{\text{Asset Amount at Risk}}Cost-Effectiveness=Asset Amount at RiskCost of Control Lower ratios indicate more cost-effective controls.
Calculations: - Asset A:$15,000 / $150,000 = 0.10 (10%)
-
Asset B:$2,500 / $6,000 = 0.42 (42%)
-
Asset C:$50,000 / $2,000,000 = 0.025 (2.5%)
-
Asset D:$20,000 / $500,000 = 0.04 (4%)
Lowest Priority:
Asset Bhas the highest ratio (42%), meaning it is the least cost-effective and
should be the lowest priority for controls.
Question # 2
| A federal government agency that expends beyond its appropriation is in violation of the | | A. Federal Managers’ Financial Integrity Act.
| | B. Federal Financial Management Improvement Act.
| | C. Ant deficiency Act.
| | D. Sarbanes-Oxley Act. |
C. Ant deficiency Act.
Question # 3
| The first step in the internal control evaluation process is | | A. identifying the effectiveness of management activities.
| | B. assessing the adequacy of controls.
| | C. documenting how transactions of events are processed.
| | D. identifying potential risks. |
D. identifying potential risks.
Explanation: What Is Internal Control Evaluation? Internal control evaluation is the
process of assessing an organization’s internal controls to ensure they are adequate and
effective in mitigating risks, ensuring compliance, and achieving objectives.
Why Is Identifying Potential Risks the First Step?
The entire purpose of internal controls is to mitigate risks. Therefore, before
evaluating the controls, you need to identify the risks they are meant to address.
Once risks are identified, the organization can evaluate whether the existing
controls are adequate and effective in mitigating those risks.
This approach aligns with risk-based frameworks like the COSO Internal Control
Framework, which emphasizes risk identification as the foundation for effective
controls.
Why Other Options Are Incorrect:
A. Identifying the effectiveness of management activities: This is part of control
evaluation but occurs after risks and controls are identified.
B. Assessing the adequacy of controls: Controls cannot be assessed until the risks
they address are identified.
C. Documenting how transactions or events are processed: While this step is
important, it comes later in the process, after risks and controls are identified.
Question # 4
| A key element in coputer-assisted audit techniques is | | A. writing the system audit program.
| | B. verifying internal controls.
| | C. obtaining appropriate data.
| | D. purchasing data mining software. |
C. obtaining appropriate data.
Question # 5
| In addition to the Yellow Book, which group's external audit standards can the GAO
reference? | | A. Public Company Accounting Oversight Board
| | B. International Auditing and Assurance Standards Board.
| | C. International Organization of Supreme Audit Institutions
| | D. AICPA |
C. International Organization of Supreme Audit Institutions
Explanation:
GAO and External Audit Standards: The Government Accountability Office (GAO)
uses the Yellow Book as its primary standard. However, it may also reference
external standards from recognized international and professional auditing
organizations. INTOSAI is specifically mentioned in the Yellow Book as a source of
additional standards for governmental audits.
Question # 6
| Entity management's appointment of a senior official to ensure the resolution of audit
recommendations is a
demonstration of management's | | A. agreement with the audit findings.
| | B. disagreement with the audit findings.
| | C. delegation of authority.
| | D. support for the audit process. |
D. support for the audit process.
Question # 7
| Which of the following is a forensic technique used to quantify the impact of fraud? | | A. test of controls
| | B. computer-assisted audit techniques
| | C. data integrity
| | D. benchmarking |
B. computer-assisted audit techniques
Explanation:
What Are Computer-Assisted Audit Techniques (CAATs)?
CAATs are specialized tools used in forensic accounting and auditing to analyze
large volumes of data for patterns, anomalies, and irregularities that may indicate
fraud.
These techniques help quantify the impact of fraud by identifying discrepancies,
overpayments, or unaccounted transactions.
Why Are CAATs Used for Quantifying Fraud?
CAATs can efficiently analyze transactional data, calculate losses, and determine
the extent of financial damage caused by fraud.
Examples include using software to detect duplicate payments, inflated invoices,
or unauthorized transactions.
Why Other Options Are Incorrect:
A. Test of controls: Tests of controls evaluate the effectiveness of internal controls
but do not quantify the impact of fraud.
C. Data integrity: Ensuring data integrity is important, but it does not specifically
address quantifying fraud.
D. Benchmarking: Benchmarking compares performance metrics but does not
analyze or quantify fraud.
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