part 1 Flashcards
(19 cards)
What is the objective of the auditor according to ISA 315?
To identify and assess the risks of material misstatement at the financial statement and assertion levels.
What is the definition of Internal Control (IC)?
IC is the process designed by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of the entity’s objectives.
What are the inherent limitations of Internal Control?
IC provides only reasonable assurance, not absolute assurance.
List the three general objectives of Internal Control.
- Reliability of financial reporting
- Efficiency & effectiveness of operations
- Compliance with laws and regulations
What are the four classifications of controls?
- Directive
- Detective
- Corrective
- Preventive
What are the components of Internal Control according to the COSO Model?
- Control environment
- Risk assessment
- Control activities
- Information and communication
- Monitoring
What does the control environment influence?
The control consciousness/awareness of its people.
What are the seven factors of the control environment as per ICHAMBO?
- Integrity and ethical values
- Commitment to competence
- Human resource policies and practices
- Assignment of authority and responsibility
- Management’s philosophy and operating style
- Board of Director’s or Audit Committee participation
- Organizational structure
What is the process of risk assessment?
Identifying risks, analyzing potential events, and deciding how to respond to the risks.
What are the common risk responses in risk assessment?
- Avoiding
- Reducing
- Transferring
- Accepting risk
Fill in the blank: Control activities are policies, procedures, techniques, and mechanisms that help ensure management’s response to reduce _______.
[risks identified during the risk assessment process]
What types of monitoring exist in Internal Control?
- Ongoing monitoring
- Periodic monitoring
What are application controls related to?
Particular systems.
What responsibilities does management have regarding Internal Control?
Design, installation, and maintenance of effective controls.
What is the auditor’s responsibility concerning Internal Control?
Obtain an understanding of internal control relevant to the audit.
What are some limitations of internal control?
- Only cost-effective controls can be implemented
- Controls directed at routine transactions
- Potential human error
- Possible evasion of controls
- Abuse of responsibility
- Inadequacy of controls due to changing situations
