Flashcards in Internal Control Communications Deck (28)
What does an integrated audits include?
Examination of internal control(nonissuers) and Audit of internal control(issuers)
Who requires issuers to have an audit of internal control?
SOX and PCAOB #5
What exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis?
What occurs when a necessary control is missing or when an existing control does not achieve the desired objective?
Deficiency in design
What occurs when a properly designed control does not operate as designed, or is performed by an inappropriate person?
Deficiency in operation
What is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented or detected and corrected on a timely basis?
What is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance?
Examples of control deficiencies consist of?
Deficiencies in the design of controls and failure in the operation of controls
Deficiencies in the design of controls consist of?
Preparation of financial statements, control consciousness, segregation of duties or safeguarding of assets, IT controls, qualifications or training, monitoring, and inadequate documentation
Failure in the operation of controls consist of?
Lack of objectivity, misrepresentation, management override, failure of an application control caused by a deficiency of a general control, deviation rate that exceeds the auditors expected rate, and failure of the information and communication
Indicators of a material weakness in internal control?
Identification of any level of fraud perpetrated by senior management, restatement of previously issued financial statements, identification by the auditor of a material misstatement that would not have been detected by the entity's internal control, and ineffective oversight by those charged with governance
Is an auditor of financial statements of a nonissuer required to perform procedures to identify deficiencies in internal control, or to express an opinion on the effectiveness of internal control?
Should significant deficiencies and material weaknesses even though corrected during the audit be communicated on a timely basis in writing?
Who is responsible to evaluate and address control deficiencies?
The written communication of significant deficiencies and material weaknesses should include the following?
Definition of term material weakness and, when relevant, the definition of the term significant deficiency, description of the significant deficiencies and material weaknesses, sufficient information to enable those charged with governance and management to understand, and use restriction
The auditor may also include the following information in the communication when appropriate?
Description of inherent limitations and nature and extent of the auditor's consideration of internal control during the audit
Does the auditor report the absence of significant deficiencies?
Can the auditor issue a communication indicating that no material weaknesses were identified during the audit?
What is the auditor's objective in an audit or examination of internal control?
Express an opinion on the effectiveness of the entity's internal control over financial reporting
Controls that may address the risks of management fraud and management override of control include controls over?
Significant or unusual transactions, period-end journal entries and adjustments, related party transactions, and significant management estimates
In testing controls, the auditor should?
Evaluate the design effectiveness of the controls, test and evaluate the operating effectiveness of the controls, obtain relatively more evidence for controls that are subject to a greater risk of failure, obtain sufficinet appropriate evidence to support the opinion, determine the effect of any identified control deviations, determine the appropriate timing for test of controls, and consider knowledge obtained during past examinations
What opinion odes the presence of a material weakness in internal control perclude to?
Should an auditor express an opnion on management's assertion when the auditor express an opinion directly on the effectiveness of internal control?
What should the auditor do when it pertains to subsequent events?
Inquire of management, obtain written representations from management, and inquire about and examine documentation for the subsequent period
In a financial statement audit, is there a requirement to communicate control deficiencies that are not significant deficiencies or material weaknesses?
In a financial statement audit, the communication of significant deficiencies and material weaknesses must be made?
Within 60 days of the report release date
Is the communication of significant deficiencies and material weaknessess restricted use in a financial statement audit?