12Aud - Basic Internal Control - Study & Eval Of Internal Control

Front 1

When evaluating a client's internal control system, what should the auditor do initially?

Back 1

Obtain an understanding of internal controls and the flow of documents and document that understanding

Front 2

How does an auditor obtain an understanding of internal control and the flow of documents?

Back 2

1. Inquiry of appropriate personnel

2. Observation of client activities

3. Review documentation -- including the client's accounting manuals, prior-year's audit documentation (working papers), etc.

Front 3

What does the auditor's internal control analysis tend to focus on when evaluating internal control?

Back 3

On major transaction cycles

Front 4

What is a transaction cycle?

Back 4

A group of essentially homogeneous transactions

Front 5

What is true about specific transaction cycles?

Back 5

it is the highest level of aggregation about which meaningful generalizations of control risk can be made.

Front 6

Control risk is constant (or the same) within a transaction cycle. T or F

Back 6

True

Front 7

Give 5 examples of transaction cycles for which a given type of transaction is subject to essentially the same configuration of internal control policies and procedures.

Back 7

1. Revenue/receipts

2.Expenditures/disbursements
3. Payroll

4. Financing/investing activities

5. Inventory, especially if inventory is manufactured, rather than purchased

Front 8

When emphasis on reliance on internal control is planned, emphasis on understanding of internal control increases. T or F

Back 8

True

Front 9

What are flowcharts of transaction cycles?

Back 9

A graphical depiction of the client's accounting systems for major categories of transactions.

Front 10

What documents have the emphasis in flowcharts of transaction cycles?

Back 10

The origination, processing, and distribution of important underlying accounting documents. OPD

Front 11

Give advantages of flowcharts of transaction cycles.

Back 11

1. A fairly systematic approach that is unlikely to overlook important considerations;

2. Tailored to client-specific circumstances;

3. Fairly easy for others to review and understand;

4. Fairly easy to update from year to year

Front 12

Give disadvantages of flowcharts of transaction cycles.

Back 12

1. Can be rather tedious and time consuming to prepare initially;

2. The auditor might fail to recognize relevant internal control deficiencies by getting too absorbed in the details of the client's system

Front 13

Name the 5 flowcharting symbols.

Back 13

Document
Computer operation/process Manual operation (off-line)Decision point
Off-line storage

Front 14

Describe the 5 flowcharting symbols.

Back 14

1. Document - A rectangle with the latter part of the bottom curved upward.

2. A Computer Operation/process - A rectangle

3. A Manual Opreation, off-line - A trapezoid with the longer side at the top

4. A Decision Point - A horizontal diamond shape

5. Off-line storage (i.e. filing) - An upside down triangle with an underlined capital D in the center

Front 15

What are internal control questionnaires (ICQs)?

Back 15

A listing of questions about client's control procedures and activities; a "no" answer is usually designed to indicate a control weakness.

Front 16

What are the advantages of internal control questionnaires?

Back 16

1. Generic questionnaires can be prepared in advance for clients in various industry categories with every conceivable question, so that no important question related to controls is likely to be omitted;

2. Deficiencies are easily identified by a client's "no" response to any question

Front 17

What are the disadvantages of internal control questionnaires?

Back 17

1. Generic questionnaires are not tailored to client-specific circumstances and irrelevant questions are annoying to client personnel;

2. The client personnel responding to the checklist of questions may conceal deficiencies by inaccurate answers without the auditor's knowledge

Front 18

What are narrative write-ups?

Back 18

A written memo describing the important control-related activities in the transaction cycles under consideration

Front 19

What are the advantages of narrative write-ups?

Back 19

1. Tailored to a client's unique circumstances;

2. Can be as detailed or general as desired;

Relatively easy to prepare the memo (and easy for reviewers to read it)

Front 20

What are the disadvantages of narrative write-ups?

Back 20

1. Relatively easy to overlook relevant internal control issues (strengths or weaknesses) because the analysis is fairly unstructured;

2. Can be tedious to make changes over time to a detailed, hardcopy memo when the client's policies and procedures have changed (may require starting over with a new memo to accommodate any changes, although this is not a problem when using modern word-processing software)

Front 21

Give the acronyms for remembering the advantages and disadvantages of flowcharts of transaction cycles.

Back 21

STEE, TF

Adv:
S yst & un
T ail
E asy r&u
E asy up

Disadv:
T & t initially
F ail recog def

Front 22

Give the acronyms for remembering the advantages and disadvantages of internal control questionnaires.

Back 22

GD, GC

Adv:
G q prep adv
D ef iden'f w/no

Disadv:
G q not tail
C onceal def by ans

Front 23

Give the acronyms for remembering the advantages and disadvantages of narrative write-ups.

Back 23

TDE, ET

Adv:
T ail
D etail or gener
E to prep

Disadv:
E ovlk IC s&w
T to make chgs