chap 12 obtain and document understanding of internal control

Question 1

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

Answer 1

FS

Question 2

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

Answer 2

design

Question 3

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

Answer 3

extent

Question 4

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

Answer 4

evidence

Question 5

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

Answer 5

whether controls that were not previously operating effectively have been improved

Question 6

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

Answer 6

internal control FSs

Question 7

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

Answer 7

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

Question 8

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

Answer 8

assessing

Question 9

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

Answer 9

opinion

Question 10

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

Answer 10

understanding

Question 11

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

Answer 11

managements documentation

Question 12

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

Answer 12

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

Question 13

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

Answer 13

publicly

Question 14

what are the 2 advantages of flowcharts over narratives?

Answer 14

1. they are easier to read 2. they are easier to update

Question 15

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

Answer 15

F they both present the same info

Question 16

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

Answer 16

effectiveness

Question 17

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

Answer 17

financial reporting

Question 18

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

Answer 18

identify assess

Question 19

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

Answer 19

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

Question 20

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

Answer 20

understand

Question 21

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

Answer 21

internal control

Question 22

why is a well preparted flowchart advantageious?

Answer 22

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

Question 23

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

Answer 23

decide planned detection risk and substantive tests

Question 24

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

Answer 24

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

Question 25

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

Answer 25

design, perform, and evaluate test of controls

Question 26

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

Answer 26

procedures

Question 27

what 4 elements does an adequate flowchart contrain?

Answer 27

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

Question 28

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 ?

Answer 28

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

Question 29

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 ____ \_\_\_\_

Answer 29

integrated audit

Question 30

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

Answer 30

a flowchart

Question 31

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

Answer 31

understanding

Question 32

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

Answer 32

that computers perform only as well as they are programmed

Question 33

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

Answer 33

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

Question 34

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

Answer 34

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

Question 35

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

Answer 35

obtain and document design and operation

Question 36

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

Answer 36

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

Question 37

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

Answer 37

risk assessment

Question 38

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?

Answer 38

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

Question 39

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

Answer 39

sufficient

Question 40

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

Answer 40

basis

Question 41

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

Answer 41

large

Question 42

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

Answer 42

assess control risk

Question 43

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

Answer 43

narrative

Question 44

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?

Answer 44

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

Question 45

what is a narrative?

Answer 45

a written description of a clients internal controls.

Question 46

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

Answer 46

design perform evaluate

Question 47

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

Answer 47

integrated

Question 48

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

Answer 48

control risk

Question 49

what is a flowchart?

Answer 49

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

Question 50

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

Answer 50

obtain and document understanding of internal control design and operation

Question 51

what is an internal control questionnaire?

Answer 51

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

Question 52

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

Answer 52

T

Question 53

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

Answer 53

internal control questionnaire

Question 54

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

Answer 54

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

Question 55

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

Answer 55

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

Question 56

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

Answer 56

1. narratives 2. flowcharts 3. internal control questionnaires

Question 57

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

Answer 57

potential internal control deficiencies

Question 58

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

Answer 58

implemented

Question 59

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

Answer 59

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

Question 60

what is a walkthrough?

Answer 60

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

Question 61

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

Answer 61

planned detection substantive

Question 62

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

Answer 62

relevant

Question 63

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

Answer 63

understand test

Question 64

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

Answer 64

implemented

Question 65

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

Answer 65

planning

Question 66

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

Answer 66

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

Question 67

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

Answer 67

assessing