Deck 9 Flashcards Preview

Audit > Deck 9 > Flashcards

Flashcards in Deck 9 Deck (20):
1

What is the primary objective of the fraud brainstorming session?

Assess the potential for material misstatement due to fraud

2

Control environment

Reflects the overall attitude, awareness, and actions of those charged with governance concerning the importance of control

3

"Substance over form" concerns

Relate to controls that appear on the surface to exist but in reality are not operating effectively.

4

Proper segregation of duties:

- Reduces the opportunities for any individual to both perpetrate and conceal errors or fraud
- Typically involves assigning different people the responsibilities of authorizing transactions, recording transactions, and maintaining custody of the related assets

5

What tests assist the auditor in assessing control risk?

Attribute tests, compliance tests, and tests of controls

6

What is the ultimate purpose of assessing control risk?

To contribute to the auditor's evaluation of the risk that material misstatements exist in the financial statements.

7

What are inherent limitations?

Limitations that exist despite implementations of appropriate controls

8

Inherent limitations of internal control include:

Collusion, management override, and human error

9

Entity-level controls:

Include controls that relate to the entity as a whole, not a specific event

10

Five components of internal control (COSO Framework)

Control environment
Risk Assessment
Information and communication system
Monitoring
Existing control activities

11

Monitoring

Process that assesses the quality of internal control performance over time (make sure everything is okay)

12

Control activities

Policies and procedures that help ensure that management directives are carried out and that necessary steps to address risks are taken (prevent, detect, and defer)

13

Strong internal control has:

"PAID TIPS"

14

Preventive controls

Designed to provide reasonable assurance that only valid transactions are recognized, approved, and submitted for processing

15

Detective controls

Designed to provide reasonable assurance that errors or irregularities are discovered and corrected on a timely basis

16

Implementation

A control has been implemented if it exists and is being used

17

Walkthroughs

Trace transactions relevant to financial reporting through the accounting system from inception through recording in the general ledger and presentation in the financial statements

18

Documentation of the understanding of the design and implementation of the entity's internal controls include:

Flowcharts
Internal control questionnaire or Checklists
Narrative
Documentation from the client

19

System flowchart

Flowchart that shows the origin of each document in the system, its subsequent processing, and its final disposition

20

Program flowchart

IT flowcharts are initially created to document the logic and existing flow of a computer program