Internal Control

Question 1

Internal Control Components

Answer 1

CRIME
Control Activities
Risk Assessment
Information and Communication
Monitoring
Environment - includes audit committee, HR, internal auditors

Question 2

Control Activities

Answer 2

Physical
Segregation of Duties
Authorization
Adequate documentation
Independent Performance Review

Question 3

Purpose of Internal Controls

Answer 3

• produce reliable accounting records for reporting
• safeguard assets from waste fraud, inefficiencies
• compliance with laws and company policies
• assess efficiency and effectiveness of operations

Question 4

Control Deficiency

Answer 4

Design or operation of a control does not prevent or detect misstatment

Question 5

Significant Deficiency

Answer 5

Control deficiency that creates more than a remote chance of a misstatement that is more than inconsequential to the F/S’s

Question 6

Material Weakness

Answer 6

Significant deficiency with more than a remote likelihood of producing a material misstatment in F/S.

Question 7

Limitations of Internal Control Systems

Answer 7

• Cost benefit
• Collusion
• Management Override
• Mistakes and breakdowns: not follow control

Question 8

Concurring testing of controls

Answer 8

they may occur as a by-product of obtaining an understanding or they may be planned.

Question 9

Dual-purpose testing

Answer 9

Performing test of controls and substantive tests of details simultaneously on the same transaction

Question 10

Material Weakness

Answer 10

A significant deficiency in internal control that has the potential to significantly affect the financial statements

Question 11

Qualified Opinion on Internal Controls

Answer 11

• Used for material weakness in internal control for GAAP only.
• Scope limitation is a disclaimer. None for qualified opinion.