Aud 3-Internal Controls Flashcards
Who should authorize write offs?
Treasurer. They’re ultimately responsible for cash. Employees in AP and AR are responsible for recording but don’t have authorization duties.
If testing ADP, what info would you include in report?
1) Reference to service or products being covered by report
2) Scope and nature of procedures
3) Purpose of engagement
In an integrated audit of a private co, auditor concludes mw in mgt’s assertion, what should the auditor do?
Issue an adverse opinion. material weakness indicates a reasonable possibility that controls will neither prevent a material misstatement nor detect and correct on time.
At the end of the engagement what, for ex. does the CPA include to mgmt. and those charged with governance?
material weaknesses and significant deficiencies.
In a properly designed internal control structure, the same employee most likely would match vendor invoices with receiving reports and also:
Recompute the calculations on vendor’s invoices
Which of the following procedures is most likely to provide evidence regarding the completeness of the amount recorded as investments in securities on the balance sheet?
Review of minutes of board of director meetings: This would show all purchases of securities that were authorized. Can compare to those reported.
In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also
Is responsible for mailing the checks: don’t want it to go into the custody of anyone else
In an audit of financial statements in accordance with generally accepted auditing standards, an auditor is always required to
Obtain an understanding of the entity’s internal control
Which of the following matters would an auditor most likely consider to be a significant deficiency or material weakness to be communicated to the audit committee?
Accounting personnel not being objective
(5) Components of Internal Control (CRIME)
Control Environment Risk Assessment Information & Communication Monitoring Existing Control Activities
Objectives of Internal Controls? (3)
- Effective and Efficient Operations
- Reporting
- Compliance with laws and regulations
An auditor is determining if internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely would select a sample of transactions from the population represented by the
Shipping document file: making sure every shipment out has had an invoice made for it
Control Environment Factors (5) : “CHOPPER”
Commitment to Competence HR policies and practices Organizational Structure Participation w. governance Philosophy of Mgmt Ethical Values Responsibility Assignment
When you express an opinion on a system of internal accounting control, it’s generally:
More extensive in scope that assessment of control risk made during the financial statement audit
When reporting on conditions relating to an entity’s internal control structure observed during an audit of the financial statements, the auditor should include a:
The report on internal controls in an integrated audit is not a general use report. It’s restricted to management, the audit committee, and BOD.
what would an auditor perform to obtain evidential matter around AR
Observe an entity’s employee preparation of the schedule of past due accounts receivable
Which conditions are needed to accept an attest engagement and report on entity’s internal control structure over fin. reporting
Management presents its written assertion about the effectiveness of the internal control structure.Then auditor presents assurance over that assertion.
Which of the following statements is correct in concerning an auditor’s required communication of internal control related matters?
Auditor’s report on internal control matters should include a restriction on the distribution of the report.
-communicate SDs and MWs after you have your whole audit conclusion
What would a co. use to safeguard marketable securities when an independent trust is not employed?
Two company officials have joint control of marketable securities which are kept in a bank safe-deposit box
When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the:
Trust company has no direct contact with the entity employees responsible for investment accounting records
What do you do when you discover a deviation?
Make inquiries to understand the potential consequence of the deviation
After obtaining an understanding of the internal control structure and assessing control risk of an entity, an auditor decided not to perform test of controls. The auditor most likely decided that bc?
The controls are not likely to be effective at preventing or detecting misstatements or it is more efficient to perform substantive procedures.
Which of the following levels would most likely address the risk of material misstatement by the auditor’s consideration of an entity’s control environment?
Financial statements: bc management has to commit to reliable financial reporting.
Auditor usually tests segregation of duties over inventory through?
Personal inquiry and observation
Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice?
The check signer reviews and cancels the voucher packets
An auditor is concerned about a policy of management override as a limitation of internal control. Which of the following tests would best assess the validity of the auditor’s concern?
Verifying that approved spending limits are not exceeded
Someone who receives inventory should:
prepare receiving reports for all good received
