Ch. 12 - Tests of Controls

Question 1

Five components of internal controls (entity level controls)

Answer 1

1. control environment
2. risk assessment process
3. information systems relevant to FR and communication
4. control activities
5. monitoring controls

Question 2

Five components of internal controls - the control environment

Answer 2

sets the tone of an entity and reflects attitude and awareness

Question 3

Five components of internal controls - risk assessment process

Answer 3

identification, analysis and management of risks relevant to the preparation of the FS

Question 4

Five components of internal controls - information systems relevant to FR and communication

Answer 4

1. initiating, recording and reporting transactions
2. resolving incorrect transactions
3. transferring information from the processing systems to the ledger

Question 5

Five components of internal controls - control activities

Answer 5

1. authorization
2. performance reviews
3. information processing
4. physical controls
5. segregation of duties

Question 6

Five components of internal controls - monitoring controls

Answer 6

policies and procedures to assess the quality of controls

Question 7

Transaction level controls - two forms

Answer 7

preventative or detective

Question 8

Transaction level controls - examples

Answer 8

1. authorization
2. segregation of duties
3. reconciliations
4. IT application controls
5. Review of results

Question 9

Techniques for testing controls

Answer 9

1. inspecting documents
2. inspecting physical evidence
3. inquiry of personnel
4. observation of personnel performing the control
5. reperformance of the control