6 Study and Evaluation of Internal Control

Question 1

C6
Entity’s System (Component) of Internal Control

CRIME

Answer 1

Control Environment
- level of commitment of TOP Mgmt. and BODs
-includes HR policies and practice relative to training, orientation, evaluating, handbook, employee background, etc

Risk Assessment Process
- Mgmt identification and assessment of risks (business risks)
-Mgmt point of view (business risks)

Information system and communication
-Means of recording transactions and communication responsibilities
-In short, ito yung accounting system
- e.g. SAP, Oracle, Quickbooks

Monitor the system of Internal Control
-assessment of IC performance
-internal auditors

Existing Control Activities
-controls policies and procedures that help ensure mgmt’s directives are carried out

Question 2

C6
Segregation of Duties

The following functions should be performed by different employees:
I CARE

Answer 2

Independent checks or internal audits

Cutody of Assets

Autorization of Transactions

Recording or Transactions

Execution of Transactions

Note: CAR is minimum

Question 3

C5
Notes:
*When obtaining an understanding, the auditor focuses on the design and implementation and NOT on effectiveness

*The effectiveness of the controls is evaluated during tests of controls since procedures performed are not sufficient to test the controls

Answer 3

Oks

Question 4

C6
Specific procedures to Understanding Internal Controls and Test Controls
IRIO

Answer 4

Inquiry

Reperformance

Inspection

Observation

Question 5

C6
One of the components of Internal Control is Control Activities.

What are the types of Control Activities?
PRAVS - New Categories

Answer 5

Physical or Logical Controls
-Security of assets
-

Reconciliations
-Compare 2 or more elements

Authorization and approvals

Verifications

Segregation of duties (CAR)

Question 6

C6
Auditing standards require the auditor to obtain an understanding of the client’s internal control structure

Answer 6

For every audit

Question 7

C6
This internal control component is the foundation for all other components. It sets the tone of the
organization, provides discipline and structure, and influences the control consciousness of employees

Answer 7

Control environment

Question 8

C6
The policies and procedures that help ensure that management directives are carried out are referred to as
the

Answer 8

Control activities

Question 9

C6
Which of the following is not one of the specific control procedures that are relevant to financial statement
audit?
a. Performance reviews
c. Segregation of duties
b. Physical controls
d. Monitoring

Answer 9

d. Monitoring - Components to

Question 10

C6
Reperformance is also known as

Answer 10

Walktrhough

Question 11

Concept of blind PO?

Answer 11

PO na binigay ni Puchasing Dept kay Receiving Dept (which nakalagay lang ay description and date of receive - no number of units). Para pag na receive na, mapoforce si receiving dept na bilangain yung mga na nareceive na items

Question 12

C6
The scope of substantive procedures as compared to the scope of tests of controls generally vary

Answer 12

Inversely

Question 13

C6
Concept of TOC vs. ST?

Answer 13

TOC
-Internal Controls
-Processes

ST
-Amounts
-Figures

Question 14

C6
Answering complex Test of Controls and Substantive Testing questions Technique:

Ilatag mo muna yung pinaka objective, then check mo yung mga choices kung may effect

Question 15

C6
1. Explain concept of Control Deficiency

2. Provide two types of Control Deficiency

Answer 15

1. term if mahina ang controls

2.
A. Material Weakness (Severe)

B. Significant Deficiency (Less Severe)

-Both are required by PSA to report to BOD or Audit Committee
-Sometimes, nagbibigay din ng recomm si exteranl auditor kay mgmt. thru Management Letter (but hndi to required by PSA only to communicate)