CH 3 - Internal control

Question 1

What is a control that would detect customer payment to the wrong account?

Answer 1

Mailing monthly statements to customers with outstanding balances

Question 2

In an non-issuer, what is the auditor’s primary consideration regarding an entity’s internal control structure policies and procedures

Answer 2

Whether controls relate to financial statement assertions

Question 3

In an audit of non-issuer, what is the auditors consideration of internal control?

Answer 3

The auditor should document the basis for conclusions about internal control is perceive to be effective or ineffective

Question 4

What are 2 advantages to internal control questionnaires compared to a flow chart?

Answer 4

1. Can prepare in advance for clients in various industry categories
2. Deficiencies are easier to be identified

Question 5

In an non-issuer what is the auditor evaluating in internal controls (2)

Answer 5

1. Design of relevant controls

2. Determining whether relevant controls have been place in operation

Question 6

What does it mean if the auditor assess the control risk below the maximum?

Answer 6

Auditor believes that there are controls in place which are believe to lessen the risk of a material misstatement occurring in the FS

Question 7

What is the ultimate purpose of assessing control risk in an audit ?

Answer 7

Contribute to the auditors evaluation of the risk that material misstatements exist in the FS

Question 8

According to COSO - policies an procedures involving ID, prioritization and analysis of relevant risks as a basis for managing those risks is known as

Answer 8

Risk assessment

Question 9

Define a walkthrough

Answer 9

When the auditor selects a few transactions and traces them through the clients accounting system

Question 10

In an non-issuer, what is the required communication timing for significant deficiencies and material weaknesses no later than?

Answer 10

no later than 60 days following the report release date

Question 11

What is an entity level control?

Answer 11

Controls that have a pervasive effect on an entity’s internal control system and may pertain to multiple components such as Risk assessment and control monitoring

Question 12

In a TOC - if there is no documentation, can an auditor still test the control?

Answer 12

Yes, auditor will use observation and inquiry

Question 13

when a TOC is tested for operating effectiveness - what is a the auditor concerned with? (3)

Answer 13

1. how internal control were applied
2. consistency with which it was applied
3. by whom it was applied

Question 14

What are 3 examples of preventative controls?

Answer 14

1. Fraud awareness training
2. background checks
3. data matching

Question 15

What type of control is a surprise audit?

Answer 15

detective control

Question 16

What is a debit memo?

Answer 16

informs vouchers payable that the vendor invoice should not be paid in full due to returned goods

Question 17

What are 3 steps included in an auditors assessment of control risk?

Answer 17

1. Evaluate the effectiveness of controls through TOC
2. Obtaining understanding of entity’s information system
3. Obtaining understanding of entity’s control environment

Question 18

An independent auditor may share responsibility for determining materiality levels with internal auditor provided that the internal auditor is what?

Answer 18

Neither objective nor competent