MCQ Flashcards
What are inherent risk and control risk both components of?
the risk of material misstatements
what are the five professional associations part of the Committee of Sponsoring organizations (COSO)?
Institute of management accounting (IMA)
AICPA
institute of internal auditors (IIA)
financial executives institute (FEI
american accounting association (AAA)
What is a concurrent audit of both financial statements and internal control?
Integrated audit
Inherent limitations arise due to:
- Human errors
- deliberate circumvention of control by collusion
- management overide
- difficulty of achieving appropriate segregation of duties
If detection risk increases, the level of assurance should:
decrease
in other words the higher the detection risk the less substantive testing needed
can subsequently discovered facts that change an audit opinion be presented in the emphasis of matter pr other matter paragraph?
Yes
What is data integrity?
relates to the assurance that data is consistent and accurate
manual entry carried a high risk of data integrity
Whenever an auditor evaluate the potential effect of management bias they should do what first?
Obtain an understanding of the reasons that management decide not to correct misstatements communicated by the auditor.
Reliability of audit evidence is dependent on the
circumstances under which it is gathered. It is also influenced by its source and nature.
The evidence an auditor obtains can be influenced by:
- Risk assessment.
- Reliability of the evidence
the process by which an auditor obtains an understanding of an entity and its environment, including its system of internal control and the applicable financial reporting framework, to evaluate the likelihood of material misstatement
Risk assessment
The relevance of audit evidence depends on:
- The timing of the audit procedure
- Whether the audit procedure is designed to directly test an assertion
- Whether the audit procedure is designed to test for an understatement or overstatement
What are the three categories of objectives as columns in the COSO cube?
o Operations
o Reporting
o Compliance
What are the 5 internal control components as rows in the COSO cube?
o Control Environment
o Risk assessment.
o Control activities.
o Information & communication
o Monitoring activities
What are the four levels of an entity’s organization as the third dimension in the COSO cube?
o Entity Level
o Division
o Operating Unit
o Function
As the acceptable level of detection risk decreases, the assurance provided from substantive test should?
Increase
If an auditor audits the parent and component, then the auditor must obtain an additional engagement letter from the component in each of the following factors:
- Legal requirements regarding the appointment of the auditor may influence the decision.
- The degree of independence of the component management from the parent entity
o Typically- the greater the degree of independence the more likely the auditor will want to - Whether a separate audit report is to be issued on the component
the susceptibility of a relevant assertion to a material misstatement, assuming there are no related controls.
inherent risk
the risk that a material misstatement will not be detected (or prevented) on a timely basis by the entity’s internal control.
control risk
the risk that the audit procedures implemented will not detect a misstatement that exists in a relevant assertion.
detection risk
A report on other comprehensive basis of accounting (OCBOA) financial statements should include an
emphasis-of-matter paragraph stating the basis, referring to the footnote that describes it, and indicating it is a non-GAAP basis.
Methods of production
Mean-per-unit
ratio estimation
difference estimation
