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Audit Part 4 > chap 12 obtain and document understanding of internal control > Flashcards

chap 12 obtain and document understanding of internal control Flashcards

1
Q

for ____ audits, auditors need to understand controls that are relevant to the audit in order to identify and assess the risks of material misstatements

A

FS

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2
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the ____ of internal controls and whether they have been implemented, and then using that info as a basis for assessing control risk and for the integrated audit

A

design

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3
Q

For integrated audits of large, publicly traded companies, the level of understanding of internal control and the ____ of testing need to be sufficient to issue an opinion on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

extent

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4
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering ____ about the design of internal controls and whether they have been implemented, and then using that info as a basis for assessing control risk and for the integrated audit

A

evidence

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5
Q

update and evaluate auditor’s previous experience with entity is especially useful to determine what?

A

whether controls that were not previously operating effectively have been improved

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6
Q

the level of understanding required for the audit of ____ ____ exceeds what is required for an audit of only the ____ ____

A

internal control FSs

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7
Q

what are the 2 main disadvantages of an internal control questionaire?

A
  1. their inability to provide an overview of the system 2. inapplicability for some audits, especially smaller ones
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8
Q

For integrated audits of large, publicly traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an opinion on the effectiveness of internal control over financial reporting in addition to ____ the risks of material misstatement as part of the audit planning process

A

assessing

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9
Q

For integrated audits of large, publicly traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an ____ on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

opinion

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10
Q

For integrated audits of large, publicly traded companies, the level of ____ of internal control and the extent of testing need to be sufficient to issue an opinion on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

understanding

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11
Q

what is a major source of info in gaining the understanding of internal controls?

A

managements documentation

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12
Q

when making inquires of client personnel about their duties, you hare trying to ascertain what?

A

whether employees understand their duties and o what is described in the clients control documentation

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13
Q

For integrated audits of large, ____ traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an opinion on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

publicly

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14
Q

what are the 2 advantages of flowcharts over narratives?

A
  1. they are easier to read 2. they are easier to update
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15
Q

T/F typically a company will use a narrative and a flowchart to describe the same system

A

F they both present the same info

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16
Q

For integrated audits of large, publicly traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an opinion on the ____ of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

effectiveness

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17
Q

For integrated audits of large, publicly traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an opinion on the effectiveness of internal control over ____ ____ in addition to assessing the risks of material misstatement as part of the audit planning process

A

financial reporting

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18
Q

for FS audits, auditors need to understand controls that are relevant to the audit in order to _____ and _____ the risks of material misstatements

A

identify assess

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19
Q

why are the use of questionnaires and flowcharts together useful for understanding the clients internal control design and identifying internal controls and deficiencies ?

A

flowcharts provide an overview of the system while questionnaires offer useful checklists to remind the auditor of many different types of internal controls that should exist

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20
Q

for FS audits, auditors need to ____ controls that are relevant to the audit in order to identify and assess the risks of material misstatements

A

understand

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21
Q

the procedures the auditors uses to obtain an understanding of ____ ____ involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info as a basis for assessing control risk and for the integrated audit

A

internal control

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22
Q

why is a well preparted flowchart advantageious?

A

because they provide a concise overview of a clients system, including separation of duties, which helps auditors identify controls and deficiencies in the clients system

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23
Q

what is the fourth and final step in the process of understanding internal control and assessing control risk ?

A

decide planned detection risk and substantive tests

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24
Q

why is it important to observe client personnel carrying about their normal accounting and control activiites?

A

it imroves the auditors understanding and knowledge that controls have been implemented

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25
Q

what is the third step in the process of understanding internal control and assessing control risk ?

A

design, perform, and evaluate test of controls

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26
Q

the ____ the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info as a basis for assessing control risk and for the integrated audit

A

procedures

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27
Q

what 4 elements does an adequate flowchart contrain?

A
  1. the origin of every document and record in the system 2. all processing that takes place 3. the disposition of every document and record in the system 4. an indication of the controls relevant to the assessment of control risk
28
Q

in addition to assessing the risks of material misstatement as part of the audit planning process, auditors need to have a sufficient level of understanding of internal control and sufficient extent of testing when dealing with audits of large publicly traded companies in order to do what ?

A

issue an opinion on the effectiveness of internal control over financial reporting

29
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info as a basis for assessing control risk and for the ____ ____

A

integrated audit

30
Q

a diagram of the clients documents and their sequential flow in the organization is called ?

A

a flowchart

31
Q

the procedures the auditors uses to obtain an ____ of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info as a basis for assessing control risk and for the integrated audit

A

understanding

32
Q

auditors sometimes depend on the untested accuracy of computer generated output because they forget what?

A

that computers perform only as well as they are programmed

33
Q

The understanding of internal control is necessary for what 2 audits?

A
  1. the audit of internal controls over financial reporting 2. the audit of FSs
34
Q

what are the 4 steps in the process of understanding internal control and assessing control risk ?

A
  1. obtain and document understanding of internal control design and operation 2. assess control risk 3. design, perform, and evaluate test of controls 4. decide planned detection risk and substantive tests
35
Q

in the first step of the process of understanding internal control and assessing control risk , you ____ and ____ understanding of internal control ____ and ____

A

obtain and document design and operation

36
Q

what 3 things does an auditor do at each stage of processing in a walkthrough

A
  1. makes inquires 2. observes activities 3. examines completed documents and recordsq
37
Q

As a part of the auditors ____ ____ procedures, the auditor uses procedures to obtain an undestanding of internal controls

A

risk assessment

38
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info for what?

A
  1. as a basis for assessing control risk 2. the integrated audit
39
Q

For integrated audits of large, publicly traded companies, the level of understanding of internal control and the extent of testing need to be ____ to issue an opinion on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

sufficient

40
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info as a ____ for assessing control risk and for the integrated audit

A

basis

41
Q

For integrated audits of ____ , publicly traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an opinion on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

large

42
Q

what is the second step in the process of understanding internal control and assessing control risk ?

A

assess control risk

43
Q

a written description of a clients internal controls. is called a ?

A

narrative

44
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info for what?

A
  1. as a basis for assessing control risk 2. the integrated audit
45
Q

what is a narrative?

A

a written description of a clients internal controls.

46
Q

in the third step of the process of understanding internal control and assessing control risk, you ____, ____, and _____ test of controls

A

design perform evaluate

47
Q

For ____ audits of large, publicly traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an opinion on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit planning process

A

integrated

48
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info as a basis for assessing ____ ____ and for the integrated audit

A

control risk

49
Q

what is a flowchart?

A

a diagram of the clients documents and their sequential flow in the organization

50
Q

what is the first step in the process of understanding internal control and assessing control risk ?

A

obtain and document understanding of internal control design and operation

51
Q

what is an internal control questionnaire?

A

it asks a series of questions about the controls in each audit area as a means of identifying internal control deficiencies

52
Q

T/F Auditing standards require auditors to obtain and document their understanding of internal control for every audit

A

T

53
Q

it asks a series of questions about the controls in each audit area as a means of identifying internal control deficiencies ?

A

internal control questionnaire

54
Q

what are the 4 types of evidence used by auditors to obtain an understanding of the design and implementation of controls?

A
  1. inspection 2. inquiry of entity personnel 3. observation of employees performing control processes 4. reperformance by tracing one or a few transactions through the accounting system from start to finish
55
Q

what are the 5 methods for understanding the design of intenral controls and evaluating if they’ve been implemented?

A
  1. update and evaluate auditor’s previous experience with entity 2. make inquires of client personnel- ask them to explain their duties 3. examine documents and records- see if info in narratives, flowcharts , and questionnaires has been implemented 4. observe entity activities and operations 5. perform walkthroughs of the accounting system
56
Q

what are the 3 types of documents auditors commonly use to obtain and document their understanding of the design of internal control?

A
  1. narratives 2. flowcharts 3. internal control questionnaires
57
Q

most internal control questionaires require a yes or no response with no responses indicating what?

A

potential internal control deficiencies

58
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been ____, and then using that info as a basis for assessing control risk and for the integrated audit

A

implemented

59
Q

why is the documentation of the assessment of design effectiveness of internal control over financial reporting usually already prepared before the auditors obtain and document their understanding of the design of internal control

A

because Section 404 of the Sarbanes Oxley Act requires management to do this

60
Q

what is a walkthrough?

A

the auditor selects one a a few documents of a transaction type and traces them from initation throught the entire accounting process

61
Q

for the fourth step of the process of understanding internal control and assessing control risk, you decided ____ ____ risk and ____ tests

A

planned detection substantive

62
Q

for FS audits, auditors need to understand controls that are ____ to the audit in order to identify and assess the risks of material misstatements

A

relevant

63
Q

before concluding that info is reliable, auditors must _____ and ____ computer based control in the same way they do for manual controls

A

understand test

64
Q

in addition to understanding the design of internal controls, the auditor must also evaluate whether the designed controls are ____

A

implemented

65
Q

For integrated audits of large, publicly traded companies, the level of understanding of internal control and the extent of testing need to be sufficient to issue an opinion on the effectiveness of internal control over financial reporting in addition to assessing the risks of material misstatement as part of the audit ____ process

A

planning

66
Q

what 4 things does a proper narrative of an accounting system and related controls include?

A
  1. the origin of every document and record in the system ex. where customer orders come from and how sales invoices are generated 2 all processing that takes place- process describes how sales amounts are determined by quatities shipped times standard prices in master price file 3. the disposition of every document and record in the system- the filing, archiving of documents, sending them to customers , or destroying them should be described 4. an indication of the controls relevant to the assessment of control risk - separating of dutires, authorizations and approvals, internal verification, etc
67
Q

the procedures the auditors uses to obtain an understanding of internal control involves gathering evidence about the design of internal controls and whether they have been implemented, and then using that info as a basis for ____ control risk and for the integrated audit

A

assessing

Audit Part 4 (11 decks)

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