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Audit & Assurance > Chapter 5 - Internal Control > Flashcards

Chapter 5 - Internal Control Flashcards

1
Q

ICs are designed to provide reasonable assurance in the following categories

A
  1. reliability of financial reporting
  2. effectiveness and efficiency of operations
  3. compliance with laws and regulations
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2
Q

ICFR objective is to see the…

A

reliability of financial reporting

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3
Q

limitations of IC include…

A

human error, collusion, management override (limitation of control, and cost/benefit analysis

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4
Q

there is often a trade off between the cost and ____ of ICs

A

effectiveness

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5
Q

the concept of reasonable assurance recognizes…

A

that the cost of ICs should not exceed the benefits

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6
Q

two types of controls

A

detective, preventive

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7
Q

why do we always asses iC even if we dont test it?

A

helps guide decisions

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8
Q

for each fruad risk, auditors must evaluate whether…

A

controls are in place to mitigate the fraud risk

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9
Q

must assess control risk to…

A

determine the nature, timing, and extent of substantial procedures to be performed

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10
Q

less reliance on control risk mean ____ CR, ____ RMM, ____ detected risk

A

higher, higher, lower

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11
Q

more reliance on control risk means ____ CR, ____ RMM, and ____ detection risk

A

lower, lower, higher

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12
Q

with more reliance on control risk, how do we adjust the nature?

A

more effective test

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13
Q

with more reliance on control risk, how do we adjust timing?

A

testing performed at year end

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14
Q

with more reliance on control risk, how do we adjust extent?

A

higher sample size

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15
Q

COSO is used by…

A

auditors and management

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16
Q

control environment sets the…

A

“tone at the top”

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17
Q

control environment is the…

A

foundation for all other components

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18
Q

audit committee is a…

A

subcommittee of the board that is generally composed of 3-6 “outside members”

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19
Q

audit committee provides a…

A

buffer between the audit team and operating management

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20
Q

all members of the audit committee must be…

A

financially literate

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21
Q

one member of the audit committee must be…

A

a financial expert

22
Q

risk assessment is from the ___ perspective

A

managements

23
Q

risk assessment is the…

A

management’s identification, analysis, and management of relevent risks to achievement of its objectives

24
Q

one way to do risk assessment is through…

A

COSO’s ERM framework

25
Q

we want a control to assess a _____ risk

A

specific

26
Q

occurance always goes with

A

vouching

27
Q

completeness always goes with

A

tracing

28
Q

who used accounts recieveable aging reports?

A

CEO

29
Q

who used new hire reports?

A

payroll clerk

30
Q

four types of functional responsibilities that should be segregated

A
  1. authorization
  2. recording transactions
  3. custody of assets involved
  4. periodic reconciliation
31
Q

the auditor cannot ever rely on info produced by the company’s info system without…

A

investigation

32
Q

“audit trail”

A

trail of activities information systems provide

33
Q

a well functioning monitoring system includes…

A

ongoing and separate evaluations and reporting deficiencies

34
Q

phase 1 of internal control evaluation is

A

undertand and document

35
Q

phase2 of evaluation is

A

asses the control risk (preliminary)

36
Q

phase 3 of evaluation is

A

Identify controls to test and perform test of controls

37
Q

entirety level controls are…

A

pervasive to the internal control system and the reliability of financial statements taken as a whole

38
Q

entity level controls are not…

A

transaction specific

39
Q

a narrative is..

A

in writing from start to finish including control

40
Q

in phase 2 assessing cost risk, we consider..

A

cost effectiveness of reliance and testing

41
Q

two reasons auditor may choose to not test controls

A
  1. Ic systems is TOO EFFECTIVE in preventing or detecting misstatements to rely upon to justify reductions in substantive testing
  2. it may take more time to test controls than to just perform more substance testing
42
Q

for non public, how do we know ICS are not effective

A
  1. walkthrough discrepancy
  2. already tested internally
43
Q

when we assess risk, we do not…

A

test every control

44
Q

for efficiency, if we test audit controls it is ____ audit more

A

less

45
Q

we want to test the _____ level controls we can

A

highest

46
Q

exception testing is…

A

testing all items in a population

47
Q

audit sampling is…

A

taking a sample from a population

48
Q

lowest level of support for a control is…

A

inquiry

49
Q

for testing of controls, direction…

A

does not matter

50
Q

if an IC is design deficient..

A

do nto proceed

51
Q

if IC is not design deficient…

A

test operating deficient

52
Q

what serious IC deficiencies do we report to audit committee?

A

material weakness and significant dificeni

Audit & Assurance (12 decks)

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