AUD 4.10 - Communication With Management And Those Charged With Governance

Question 1

A committee of the board of directors generally made up of three to five members of the board who are “outside directors” (neither employees or part of management);

Answer 1

Audit committee

Question 2

Who strongly recommends and audit committee and who requires it?

Answer 2

Recommended by the SEC
Required by the NYSE

Question 3

The main function of the audit committee is to:

Answer 3

Enhance internal control by creating a means of direct communication between the “outside directors” and the independent auditor

Question 4

The audit committee is considered to be part of:

Answer 4

The internal control structure

Question 5

What are the audit committees responsibilities?

Answer 5

Select and appoint the independent auditor and set fees
Assures auditors independence
Reviews the natural and details of the audit engagement
Maintains lines of communication between the auditor and the board of directors

Question 6

The sarabanes oxley act which applies to issuers, requires the audit committee to:

Answer 6

Approve he engagement of the auditor
Preapprove the services to be performed
Have ongoing communication with the auditor

Question 7

What should the auditor communicate to those charges with governance?

Answer 7

The planned scope and timing of the audit and any significant risks identified

Question 8

Communications for financial statement audits of nonissuers is governed by who?

Answer 8

Statements on auditing standards (SAS)

Question 9

Communications regarding the integrated audit of nonissuers is governed by who?

Answer 9

Statements on auditing standards (SAS)

Question 10

Communications regarding integrated audits of issuers is governed by who?

Answer 10

PCAOB

Question 11

This occurs when a necessary control is missing or when an existing control does not achieve the desired objective:

Answer 11

Deficiency in design of control

Question 12

This occurs when a properly designed does not operate as designed or is performed by a inappropriate person

Answer 12

Deficiency in operation of control

Question 13

A reasonable possibility that a material misstatement will not be prevented or detected and corrected on a timely basis:

Answer 13

Material weakness

Question 14

Less severe than a material weakness, yet important enough to merit attention by those charged with governance

Answer 14

Significant deficiency

Question 15

Indicators of material weakness include:

Answer 15

Any level of fraud perpetrated by senior management
Restatement of previously issued financials
An auditor identifying material misstatement that the entity did not
Ineffective oversight by those charged with governance

Question 16

the severity of a deficiency depends on the:

Answer 16

Magnitude o the potential misstatement
and
Reasonable possibility that the entity’s controls will fail to prevent, detect, or correct it

Question 17

The reasonable possibility that the entity’s controls will fail to prevent, detect, and correct the misstatement:

Answer 17

Likelihood

Question 18

Considers the dollar amount and the volume of activity in accounts exposed to the deficiency

Answer 18

Magnitude

Question 19

Control deficiencies for a nonissuer are required to be communicated to who and by when?

Answer 19

Management either orally or in writing
Within 60 days of report release date

Question 20

Significant deficiencies for a nonissuer are required to be communicated to who and by when?

Answer 20

Management and those charged with governance in writing
Within 60 days of report release date

Question 21

Material weaknesses for a nonissuer are required to be communicated to who and by when?

Answer 21

Management and those charged with governance
Within 60 days of report release date