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17 Cards in this Set
- Front
- Back
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Define Control Risk
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The risk that an established control proc will not detect or prevent on a timely basis a MM in a f/s assertion.
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When may an auditor assess control risk at the max level?
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1. Controls do not pertain to an assertion.
2. Controls are not likely to be effective. 3. Testing controls would be ineffiicent. |
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Relationship between the level of control risk and the level of substantive testing.
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There is a direct relationship.
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Relationship between the level of detection risk and the assurance provided by substantive tests?
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Inverse
The more assurance provided through substantive tests, the less likely a deviation from a f/s assertion will go undetected. |
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What would result in the assessment of CR being too high?
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It will occur when the sample selected to test controls does not support the true operating effectiveness of the control structure.
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What are the effects of assessing control risk too high?
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The error will diminish the efficiency (due to excessive substantive testing) but not the effectiveness of the audit.
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What are the auditor's responsibilities in relation to documenting the assessed level of control risk?`
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Document understanding I/C elements and state the assessemnt. If not at the max level give reasons why.
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How should the auditor identify internal control deficiencie?
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Auditor should inquire about the authorization of transactions, recording of transactions, custody of assets, comparisons and segregation of duties.
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How should the auditor evaluate the operational effectiveness of the internal control stucture policies and proc's?
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1. Inquire to determine who performed a procedure.
2. Inspect documents & reports to determine how proc was executed and who executed it. 3. Observe specific policies and proc's to determine who performed a proc. 4. Re-perform the proc to substantiate that the proc was correctly performed. |
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What is a compliance test?
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A test to determine whether a designed contorl is applied as intended.
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When would an auditor do a compliance test?
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When controls are designed effectively and testing such controls will be more efficient that the incremental substantive test of details necessary if the test are not performed.
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An auditor will normally find the rate of deviations from control proc's greater than the error rate in the records.
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True
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What characteristics of evidential matter influence the NTE of an auditor's test of controls?
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1. Type of evidential matter
2. Source 3. Timeliness 4. Existence of other evidential matter that relates to the same conclusions. |
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What types of proc's are considered substantive tests?
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Tests of balances and transactions and analytical review procedures.
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List the most common transaction cycles.
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1. Cash Rec, Recvables, sales
2. Cash dis, payables, purchse 3. Fixed Assets 4. Inventory and production 5. Payroll |
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What is the best control procedure to prevent the occurrence and concealment of errors or fraud.
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Segregation of duties between custody, authorization, record keeping and execution.
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What are some examples of proc's performed when testing controls?
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1. Inspection of records
2. Client inquiries 3. Observing the application of policies 4. Performin the actual procedures |
