Audit of Internal Control Steps

Question 1

what is the first step in the audit of I/C

Answer 1

obtaining understanding of the entity

Question 2

what is done in the understanding step

Answer 2

the I/C of the client must be understood sufficently enough to be able to plan examination and risk assesemen

Question 3

when must the understnding me donw

Answer 3

early in the audit

Question 4

what 4 outlined methods can be used in obtaining undertadnig

Answer 4

• walkthrough
• narrative
• questionaire
• flowchart

Question 5

what is the most important I/C compoenent to know for the understading step

Answer 5

the control environment

Question 6

what is the second step in assessing I/C

Answer 6

evaluating desgin effectiveness

Question 7

what is done in hte design effectiveness evaluation step

Answer 7

evaluate whether statements are auditable

Question 8

why must it be evaluated if statemnets are auditable, what are the 2 outcomes

Answer 8

I/C evalauted as weak - effectiveness issue
I/C testing evaluated as expensive - efficiency issue

Question 9

what is the third step in I/C assessment

Answer 9

assessment of control risk

Question 10

what model is used in hte control risk assessment stage

Answer 10

the ARM model

Question 11

in the assessment of control risk, do we asses weaknesses or strenghts

Answer 11

strenghts, because weaknesses are just lack of contorls

Question 12

what are the three conclusions that we can come to after assessing controls risk

Answer 12

CR is high - pure substantive
CR is low - combined (common)
CR is low - pure substantive due to cost reasons (rare)

Question 13

what is the 4th step in I/C audit

Answer 13

identify and asses RMM

Question 14

what level is RMM assesed at?

Answer 14

at assertion level

Question 15

what is the 5th step in audit I/C controls

Answer 15

design the control tests

Question 16

when designing the control tests, what is determiend

Answer 16

the level of compliance that is required in order to consider controls as working

Question 17

what is the 6th step of I/C controls

Answer 17

conducting test of controls

Question 18

how is evidence gathered for the test of controls

Answer 18

gathered after a population is identifued and intention to get data is made

Question 19

what control testing options are there

Answer 19

• inspections
• obserations
• inquries
• recalculation

Question 20

should the sample be during a specific time in the period or for the entire period

Answer 20

should span and be representative of the entire preiod

Question 21

what is the 7th, and final step in I/C audit

Answer 21

evaluating results

Question 22

what 2 results are possible

Answer 22

results support design of CR
results condlude there is issued with CR

Question 23

what should be done if the results are in line with the preceiveed CR

Answer 23

use the same assessed CR and proceeed as planned in the audit

Question 24

what should be done if tests consclude dufferently about CR

Answer 24

CR should be reconsidered

Question 25

since CR is reconsidered and thus increased, what possible implications could this mean in methodoology and staffing

Answer 25

• more staff with expenrience
• more skepticims
• more SAAE required
• more supervision
• less predicatable procedures

Question 26

if control deficiencies are severe enough, should this be passed on to management

Answer 26

yes, it should be relayed in the Manamgent letter

Question 27

what 3 things are assessed during the assessment of control risk

Answer 27

• control evnrionment
• application controls
• general controls

Question 28

high volume and high turnover is or isnt inherently risky?

Answer 28

is very risky when it comes to assest missaproproaition

Question 29

any time there is a salesman, what can go wrong

Answer 29

salesman can collude with buyer - can giver a lower selling price for personal gain

Question 30

what is the risk whenever credit is involved

Answer 30

credit may be granted innapropriately and not collected

Question 31

is cash given on hand dangerous?

Answer 31

yes