AICPA Exam CPA-Auditing Topic 1 Question 107 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 107
Topic #: 1

Which of the following is not true with respect to the control activities of an entity?

AControl activities are the policies and procedures that help ensure that management directives are carried out.

BControl activities are the policies and procedures that help ensure that the financial statements are fairly presented in conformity with generally accepted accounting principles.

CAn understanding of control activities may be obtained while the auditor is obtaining an understanding of the other components of internal control.

DAn understanding of control activities does not require an understanding of control activities related to each account balance included in the financial statements.
Explanation
Choice 'b' is correct. Control activities are the policies and procedures that help ensure that management directives are carried out. These policies and procedures may relate to any of the three objectives (financial reporting, operations, and compliance), not strictly to the financial reporting objective.
Choice 'a' is incorrect. Control activities are defined as the policies and procedures that help ensure that management directives are carried out.
Choice 'c' is incorrect. As an auditor obtains an understanding about the other components of internal control, he or she is also likely to obtain some knowledge about control activities.
Choice 'd' is incorrect. Ordinarily, audit planning does not require an understanding of control activities related to each account balance, transaction class, and disclosure component.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. Any report issued on significant deficiencies should indicate that providing assurance on internal control was not the purpose of the audit.

Choice 'a' is incorrect. The auditor should communicate significant deficiencies to management and those charged with governance, but is not required to request a meeting with management one level above the source of the reportable conditions, to discuss suggestions for remedial action.

Choice 'c' is incorrect. Significant deficiencies discovered and communicated at an interim date do not need to be reexamined with tests of controls before completing the engagement.

Choice 'd' is incorrect. Suggestions concerning administration efficiencies and business strategies may be communicated in the same report with significant deficiencies (the significant deficiencies must be separately identified, however).

by Annelle at Feb 09, 2025, 06:01 PM

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23 days ago

I'm glad the explanation clarified that control activities aren't limited to financial reporting. That would've been a tricky one to remember on the exam.

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Anisha

2 days ago

I agree, it's good to know that control activities cover more than just financial reporting.

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2 months ago

I think the answer is B.

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