I is correct ii is correct

1.The basic concept of internal control that recognizes the cost of internal control should not exceed the benefits expected to be derived is known as: reasonable assurance.

2.An entity’s control activities include all of the following except: external auditor’s tests of controls. 

3. Auditors are most likely to gather audit evidence solely using substantive procedures: if the implemented controls are assessed as ineffective. 

4.Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of: authorization, recording, and custody. 

5. The documentation of an auditor’s understanding of internal controls: can include any combination of narratives, questionnaires, or flowcharts. 

6. To obtain evidential matter about control risk, an auditor selects from a variety of audit procedures including: inquiry

7. An entity’s internal controls are most relevant to the auditor when the policies and procedures: affect the financial statement assertions. 

8. The concept of reasonable assurance in the context of an entity’s internal controls recognizes that: the costs of some controls may be too high to implement in relation to potential benefits. 

9. A substantive strategy differs from a reliance strategy in that a substantive strategy includes: increased implementation of tests of details of transactions and balances.

10. For certain controls, such as segregation of duties, documentary evidence may not exist. An auditor would most likely test the procedures by: observation and inquiry. 

11. An audit strategy that sets the allowable detection risk as “high” likely includes all of the following except: audit work only completed at year-end.

12. Significant deficiencies are matters that come to an auditor’s attention that should be communicated to an entity’s audit committee because they represent: deficiencies in the design of controls or failures in the operation of internal controls that merit the attention of those charged with governance. 

13. In order for an external auditor to complete an audit of a public company, the entity’s management must comply with all of the following except: present an oral assessment of the effectiveness of the entity’s internal control over financial reporting as of the end of the entity’s most recent fiscal year.

14. An “integrated audit” as stated in Section 404 of the Sarbanes-Oxley Act means: the auditor must conduct two audits, one on the effectiveness of internal control and one on the financial statements, in an integrated way.

15. A modification of the standard report is required for all of the following conditions except: management has concluded that internal controls are effective.Correct

16. AAA & Associates recently finished auditing LinktheEarth Corporation’s internal control over financial reporting. AAA found a number of material weaknesses in the entity’s internal control. LinktheEarth’s management remediated all of the weaknesses that AAA found. However, the auditors did not have sufficient time to retest the controls. What report should AAA issue with regards to internal control over financial reporting at year-end? Adverse report 

17. The PCAOB Auditing Standards require the auditor to provide which of the following when performing an integrated audit? Reasonable assurance on both the financial statements and internal control 

18. A deficiency that implies that there is a reasonable possibility of misstatement in the financial statements that is significant but not material is: a significant deficiency.

19. An auditor performing an audit of internal control over financial reporting would be required to: form an opinion on the effectiveness of internal control.