Auditing Test 2

Front 1

What are the 3 primary objectives of effective internal control?

Back 1

1. Reliability of financial reporting
2. Efficiency & effectiveness of operations
3. Compliance with laws and regulations

Front 2

What are management's repsonibilities related to internal control

Back 2

1. Establishing and maintaining
2. Reasonable assurance (can't have 100%)
3. Inherent limitations

Front 3

Management's section 404 of SOX to Internal control report must include

Back 3

1. Management is repsonible for est. and maintaining adequate control structure and procedures for financial reporting
2. Assessment of operating effectiveness of control structure and procedures for financial reporting

Front 4

Auditor responsibilities related to internal control

Back 4

- controls over the reliability of financial reporting
- controls over classes of transactions
- Auditor responsibilities for testing internal control - must perform Test of controls (TOC) to report on effectiveness of Internal Control over financial reporting

Front 5

Sales Transaction related Audit objectives

Back 5

- Sales are for shipments to exisiting customers (occurence)
- Exisiting sales transactions are recorded (completeness)
- Sales for goods shipped correctly billed (accuracy)
- Sales transactions are correctly included in the master files (posting & summary)
- Sales transactions are correctly classified (classification)
- sales are recorded on the correct dates (timing)

Front 6

What are the FIVE components of COSO internal control framework

Back 6

Control Environments
- Monitoring
- Risk assessment
- Control activities
- Information and communication

Front 7

What does COSO stand for

Back 7

Committee of sponsoring organizations

Front 8

The Control environment has what 3 main points

Back 8

1. integrity and ethical values
2. Overt commitment to competence
3. Board of directors or audit committee participations
- default for public companies

Front 9

The control environment has what 3 main components

Back 9

1. Management's philosophy and operating style
2. Organizational structure (vertical/horizontal)
3. Human resource policies and practices

Front 10

Formal Risk Assessment Process (4 Steps)

Back 10

1. Identify factors that may increase risk
2. Estimate the significance of the risk
3. Assess the likelihood of the risk occurring
4. Determine actions necessary to manage the risk

Front 11

Control activities
5 activities

Back 11

1. Adequate separization of duties
2. proper authorization of transactions and activities
3. physical control over assets and records
4. Independent checks on performance

Front 12

CART - Control Activities

Back 12

Custody
Authorization
Reporting
Technology

Front 13

What is the purpose of an accounting information and communication system

Back 13

Iniate, record, process, report (IRPR) the entity's transactions and to maintain accountability for the related assets

Front 14

Monitoring does what

Back 14

Deal with managements ongoing and periodic assessment of internal control performance

Front 15

How does one obtain and document internal control?
4 Phases

Back 15

1. Obtain an understanding of internal control
2. Assess control risk
3. Design, perform, and evaluate tests of controls
4. Decide planned detection risk and substantive tests

Front 16

Phase 1: Obtain and Document understanding of internal control

Back 16

REQUIRED
Gain evidence about
- design of the internal controls
- whether placed in operation
- use of the information as a basis for the integrated audit

Front 17

Methods used to obtain and document the understanding of internal controls

Back 17

Narrative
Flowchart
Internal control questionnaire (yes/no)

Front 18

Evaluating Internal Control Operation

Back 18

- Update and evaluate auditor's previous experience with the enitiy
- make inquiries of client personnel
- examine docs and records
- observe entity activities and ops
- Perform walk-through of the accounting system

Front 19

Assess control Risk

Back 19

- whether the financial statements are auditable
- determine assessed control risk by understanding obtained assuming the controls are being followed

Front 20

Control Risk Matrix

Back 20

- Identify audit objectives
- Identify exisiting controls
- Associate controls with related audit objectives
- Identify and evaluate control deficiencies, significant deficiencies, and material weaknesses

Front 21

What is a significant deficiency

Back 21

If one or more control deficiency exists that is less severe than a material weaknessm but more important enough to merit attention by those responsible for oversight of company's financial reporting

Front 22

Material Weakness

Back 22

Significant deficency by itself or in combo with other significant deficiencies results in a reasonable possibility that internal control will not prevent or detect material financial statement misstatements on a timely basis

Front 23

Material weakness is ___

Back 23

More likely than not misstated

Front 24

GAAS says communications______

Back 24

Communications to those charged with governance, auditor required to report significant deficiencies and material weakness in writing

Front 25

How does one design and perform tests of controls?

Back 25

1. Make inquiries of client personnel
2. Examine documents, records, and reports
3. Observe control-related activities
4. Reperform client procedures

Front 26

The auditor links control risk assessments to __________

Back 26

the balance related audit objectives

Front 27

What are the section 404 requirements for reporting on internal control?

Back 27

The auditor's opninion on whether the company maintained effective internal control over financial reporting as of the specified date

Front 28

Types of auditor opinions on internal controls

Back 28

1. Unqualified
2. Adverse - material weakness exists
3. Qualified or disclaimer - scope restriction or unable to obtain sufficient evidence

Front 29

Differences with non-public companiesq

Back 29

1. Reporting requirements
- no audit of IC only report if significant defencies exist
2. Extent of required IC
3. Extent of understanding
4. Assessing control risk
5. Extent of tests of controls