Auditing Ch. 10

Front 1

What are the client's 3 internal control objectives

Back 1

1) Reliability of financial reporting
2) Efficiency and effectiveness of operations
3) Compliance with applicable laws and regulations

Front 2

What does efficiency relate to

Back 2

The time it takes to complete a task

Front 3

What does effectiveness relate to

Back 3

The quality of work

Front 4

Efficiency and effectiveness

Back 4

Safeguarding of assets
Accurate information for decision making

Front 5

What are managements responsibilities related to internal control

Back 5

Establish and maintain system of internal controls (reasonable assurance, Inherent limitations)
Section 404 reporting responsibilities (design of internal control, Operating effectiveness of internal controls)

Front 6

What are the auditors responsibilities related to internal control

Back 6

Understand internal controls to assess control risk in the audit (reliability of financial reporting, Classes of transactions)
Section 404 reporting responsibilities (testing internal control, Issue a report on internal controls)

Front 7

Who should approve the audit firms services

Back 7

Audit committee

Front 8

What are the 5 components of internal control

Back 8

Control environment
Risk assessment
Control activities
Monitoring
Information and communication

Front 9

What are the 5 specific control activities

Back 9

1) adequate seperation of duties
2) Proper authorization of transactions and activities
3) adequate documents and records
4) physical controls over assets and records
5) Independent checks on performance

Front 10

What are 4 control activities for adequate documents and records

Back 10

Prenumbered consecutively
Prepared at the time of transaction
Designed for multiple use
Constructed to encourage correct preparation

Front 11

What is the most important type of protective measure for safeguarding assets and records

Back 11

The use of Physical Precautions

Front 12

Why does the need for independent checks arise

Back 12

Because internal control tends to change over time unless there is a mechanism for frequent review

Front 13

What is the purpose of an accounting information and communication system

Back 13

To initiate, record, process, and report the entity's transactions and to maintain accountability for the related assets

Front 14

The level of understanding internal control and extent of testing required for the audit of internal controls exceeds what is required for only....

Back 14

An audit of financial statements

Front 15

What does SAS 109 and PCAOB standard 2 both require

Back 15

Auditors to obtain an understanding of internal control for every audit and document their understanding

Front 16

What are the procedures to obtain an understanding of internal control

Back 16

Gather evidence regarding the design of controls
Determine whether the controls are in operation
Uses the information as a basis for the integrated audit of the financial statements

Front 17

What are 3 internal control documentation methods

Back 17

Narrative
Flowchart
Internal Control Questionnaire

Front 18

How does an auditor evaluate internal control

Back 18

Performing walkthroughs
Inquiries of client personnel
Evaluate auditors previous experiences with entity
Examine documents and records

Front 19

How does an auditor assess whether the financial statements are auditable

Back 19

Evaluate the integrity of management
Evaluate the adequacy of the accounting records

Front 20

The auditor must communicate
significant deficiencies and material weaknesses HOW, and to WHO

Back 20

Must be in writing and To those charged with governance (as soon as the auditor becomes aware of their existence, Latest date is 60 days after audit report)

Front 21

What are the procedures for tests of controls

Back 21

Make inquiries of client personnel
Examine documents, records, and reports
Observe control-related activities
Reperform client procedures

Front 22

The extent to which tests of controls are applied depends on what

Back 22

The preliminary assessed control risk

Front 23

SAS 110 requires tests of specific controls when

Back 23

At least every third year and some controls in the area must be tested every year

Front 24

When do significant risks require testing

Back 24

Every year if the auditors want a control risk assessment below 100%

Front 25

Testing less than the entire audit period

Back 25

Interim period testing of controls is common

Front 26

How are the planned detection risk and related substantive tests determined

Back 26

The auditor uses the results of the control risk assessment process and tests of controls to determine these

Front 27

Section 404 Reporting on internal control

Back 27

The auditor's opinion on whether the company maintained, in all material respects, effective internal control over financial reporting as of the specified date

Front 28

Unqualified opinion on internal control

Back 28

There are no identified material weaknesses and no restrictions on the scope of the auditors work

Front 29

Adverse opinion on internal control

Back 29

Issued if a material weakness exists
Most common cause is when management identified a material weakness in its report

Front 30

Qualified or disclaimer opinion on internal control

Back 30

Required when there is a scope limitation
Could occur when auditor cannot reach an opinion for other reasons besides a scope limitation

Front 31

Reporting requirements for nonpublic companies

Back 31

No requirement for an audit of internal control over financial reporting
SAS 112: auditor is required to issue a written report on significant deficiencies and material weaknesses to those charged with governance

Front 32

Extent of required internal controls for public companies

Back 32

Management is required to have the controls just like in public companies