1. A material weakness in internal control represents a control deficiency that:

i) more than remotely adversely affects a company's ability to initiate, authorize, record, process, or report external financial statements reliably.

ii) Results in a reasonable possibility that internal controls will not prevent or detect material financial statement misstatements.

iii) exists because a necessary control is missing or not properly designed.

iv) reduces the efficiency and effectiveness of the entity's operations.

Hint: As with most CPA exam questions, you need to be very precise in using the terms and concepts. Find the answer that most closely matchings the form definition of a material weakness from the text. Then use differences between that formal definition and the alternatives to rule select one and rule the others out. When ruling out alternatives, be clear on how the alternative differs from the formal definition.

Answer:

Explanation:

2. As the design of general IT controls weaken, the auditor is most likely to"

i) reduce testing of automated application controls done by the computer.

ii) increase testing of general IT controls to conclude whether they are operating effectively.

iii) expand testing of automated application controls used to reduce control risk to cover greater portions of the fiscal year under audit.

iv) ignore obtaining knowledge about the design of general IT controls and whether they have been implemented.

Hint: This question focuses on the evaluation of the design of controls versus their application and the effect of a weak design on testing their application. It is placed in an IT environment, but the general principles apply to manual controls as well.

Answer:

Explanation: