Aud - Internal Control

Front 1

What is internal control?

Back 1

A process designed to provide reasonable assurance that entity objectives will be achieved.

Front 2

Three categories of objectives in internal control:

Back 2

1. reliability of financial reporting
2. effectiveness and efficiency of operations
3. compliance with applicable laws and regulations

Front 3

What is the fundamental concept behind internal control?

Back 3

Segregation of duties in order to elminate incompatible functions, which place a person in the position to both perpetuate and conceal errors or fraud in the normal course of duties.
- separation of authorization, record keeping and custody of assets

Front 4

Basic influences of internal control (6)

Back 4

(MODERN)
Methods of information processing
Organization and ownership characteristics
Diversity and complexity of ops
Entity's size
Regulatory and legal requirements
Nature of its business

Front 5

Components of internal control

Back 5

(components of internal control fight CRIME)
Control activities
Risk assessment
Information and communication
Monitoring
control Environment

Front 6

What are control activities?

Back 6

those policies and procedures established to provide reasonable assurance that management decisions are executed

Front 7

What is risk assessment?

Back 7

an entity’s (not an auditor’s) location, evaluation, and management of risk.

Front 8

Under Sarbanes Oxley, how long must be workpapers be retained?

Back 8

7 years

Front 9

Segregation of duties must separate what?

Back 9

(ARC that protects from sea of troubles)
Authorization
Recording
Custody

Front 10

The overall attitude and awareness of the BOD concerning the imptce of IC is reflected in what?

Back 10

The Control Environment

Front 11

What are the 7 audit steps?

Back 11

-Planning the audit
-Review internal control
-Evaluate internal control, preliminary assessment of control risk-Consider evidence to justify further reduction of assessed control risk
-Final assessed level of control risk (NET)
-Perform substantive tests
-Write audit report

Front 12

What are the 4 types of controls (compliance testing)?

Back 12

Observation
Inquiry
Inspection
Re-perform procedures

Front 13

An auditor uses the knowledge provided by the understanding of IC and final assessed level of control risk primarily to determine NET of?

Back 13

Substantive tests

Front 14

Direct or inverse relationship between:
control risk and detection risk

Back 14

inverse

Front 15

Direct or inverse relationship between:
detection risk and substantive testing

Back 15

inverse

Front 16

Direct or inverse relationship between:
control risk and substantive testing

Back 16

direct

Front 17

What is the primary consideration regarding an internal control policy or proecdure?

Back 17

Whether it affects mgmt's financial statement assertions

Front 18

In planning, the auditor's knowledge about the design of relevant IC policies and procedures should be used to?

Back 18

Identify the types of potential misstatements that could occur

Front 19

What are the 9 control activities you always want to be looking for?

Back 19

(BANCISMOP)
Bonding
Authorization/Approval
Numeric checks
Cross checks
Internal audit function
Separation of duties
Mechanical devices
Other
Personnel polices/procedures

Front 20

If control risk is at maximum

Back 20

- high probability of errors
- document basis for conclusion
- no tests of controls
- extensive substantive tests

Front 21

If control risk is below maximum

Back 21

- document basis for conclusion
- identify specific p/p in place to be relied on
- low probability of errors
- perform test of controls

Front 22

The acceptable level of detection risk is inversely related to what?

Back 22

Assurance provided by substantive tests

Front 23

What are reportable conditions?

Back 23

matters that come to an auditor's attention that should be communicated to an entity's audit committeeq because they represent significant deficiencies in the design or operation of IC

Front 24

Control risk should be assessed in terms of what?

Back 24

financial statement assertions

Front 25

Mailing disbursement checks and remittence advices should be controlled by the employee who

Back 25

signs the checks last

Front 26

True or false: an auditor must search for reportable conditions

Back 26

false

Front 27

True or false: if control risk is below maximum, proper documentation about conclusion and supporting evidence are included in w/ps

Back 27

true

Front 28

True or false: To document ICs, an auditor must use both flowcharts and questionnaires.

Back 28

false - can use anything

Front 29

True of false: during planning the auditor is required to evaluate the operating effectiveness of controls over time

Back 29

false - you dont evaluate the effectivessness in planning, just that they are there

Front 30

True or false: substantive testing can be completely eliminated in performing an audit

Back 30

False - you can never completely eliminate substantive testing

Front 31

Where does the AP/Purchasing cycle begin?

Back 31

With the factory user.
-runs out of material and fills out a Stores Requisition (SR)

Front 32

When a Purchasing Dept fills out a Purchase Order, where do the 4 copies go?

Back 32

Copy 1 - Filed
Copy 2 - Sent to vendor
Copy 3 - Blind copy to receiving dept
Copy 4 - Sent to accounts payable department

Front 33

What are reportable conditions?

Back 33

Deficiencies in IC design, or failure in IC operation

Front 34

Are auditors required to search for reportable conditions?

Back 34

No, but if you find something, you have to report them to the Board of Directors or Audit Committee

Front 35

What is a material weakness?

Back 35

Reportable condition that is EXTREMELY significant.
- as an auditor, not required to distinguish between material weaknesses and reportable conditions

Front 36

What if reportable conditions are not corrected?

Back 36

- may feel its too expensive, may have compensating controls
- if a lot of time passes, may want to report on them a second time