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15 Cards in this Set
- Front
- Back
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What are the 3 COSO objectives?
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1. Operation: Effectiveness and efficiency of operation
2. Financial reporting: Reliability of financial reporting 3. Compliance: Compliance with applicable laws and regulations |
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What are the 5 inherent limitations of an internal control system?
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1. Faulty judgement and decision-making
2. Costs may outweigh benefits 3. Human error 4. Collusion 5. Management may override |
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What are the 5 COSO components?
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1. Control environment
2. Risk assessment 3. Control activities 4. Information & Communication 5. Monitoring |
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What COSO component does segregation of duties fall under? Training people effectively? What is the difference?
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Control activities. Control environment. Control environment is less direct.
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What is an example of an action that would fall under the COSO component Information & Communication?
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Lots of possible examples - anything that identifies, captures, or communicates data to enable people to do their jobs
Ex.: Company tracks radiation exposure to comply with state regulations |
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Does Information & Communication comprise internal information? External information?
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Yes. Yes.
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What possible categories could the action of management informing employees to take their responsibilities seriously fall under?
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Information & Communication, Control Environment.
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What should be concluded about the effectiveness of internal controls if one component is missing, but the others are perfect?
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Internal control is ineffective FOR THAT CATEGORY (i.e. if it is a financial reporting control, financial controls are ineffective, but operating controls may be ok)
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Name 4 of the 7 factors that affect the control environment.
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1. Integrity and ethical values
2. Commitment to competence 3. Board of Directors 4. Management's philosophy 5. Organizational structure 6. Assignment of responsibility 7. Human resource policies |
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What must be done before risk assessment is possible? Why?
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Set objectives. Because many risks affect reaching a goal, not general danger.
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What are the 5 criteria for fair presentation of financial reports?
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1. Accounting principles are generally recognized
2. Accounting principles are appropriate in the circumstances 3. Financial statements inform the user of matters that affect use, understanding, and interpretation 4. Reasonably classified and summarized 5. Condense the underlying transactions into the 3 statements |
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Does the COSO category of information and communication include external communication?
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Yes
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In what area can internal controls NOT provide even reasonable assurance?
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Achievement of objectives.
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In what ways can a covered member impair his independence through ownership?
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1. Owns direct or material indirect financial interest in client
2. Promised to buy direct/material indirect interest 3. Trustee of trust/estate that owns AND authority, >10% ownership, or value of ownership > 10% total trust value 4. Person+coworkers+family 5-person group owns > 5% outstanding equity |
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In what ways can a covered member impair his independence through employment?
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1. Works as director/officer/manager of client
2. Works as a promoter/underwriter 3. Trustee for client's pension or profit-sharing trust 4. One of the above was formerly true AND engagement covers employment time frame, or interest has not been terminated |
