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ACCGT 333 > Chapter 13 > Flashcards

Chapter 13 Flashcards

1
Q

Why does SOX exist and what is it?

A
  • SOX was designed to improve financial transparency and reduce accounting fraud in publicly traded companies.
  • Make certain financial disclosures, establish internal controls, and comply with auditing standards
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2
Q

What is SOX section 302

A

Corporate responsibility for financial reports

management certify financial statements

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3
Q

What is SOX section 404

A

Management assessment of internal controls

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4
Q

What are the three main functions of internal controls?

A
  • preventative
  • Dectective
  • Corrective
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5
Q

Preventative:

A

implement prior to a threat and reduce and/or avoid potential successful threat (authorization)

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6
Q

Detective:

A

find errors or problems after the transaction has occurred (band reconciliation and monthly trials)

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7
Q

Corrective

A

put in place when errors or irregularities have been detected (backup files to recover corrupted data)

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8
Q

What are the five components of the COSO Internal Control Framework?

A
  1. Control environment
  2. Risk assessement
  3. Control assessment
  4. Control activites
  5. Information and communication
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9
Q

What is Control environment

A

Set the foundation of the internal control system

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10
Q

Risk Assessment

A

Identify the possible internal and external risks and opportunities

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11
Q

Control activities

A

Policies that ensure firm objectives are being achieved and risk is low while carrying out all duties

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12
Q

Examples of control activites:
1. Authorization
2. SOD
3. Supervision
4. Accounting
5. Access Control
6. Independent verification

A
  1. Authorization: ensure transactions are valid
  2. SOD: separatation of duties
  3. Supervision: compensate for lack of SOD
  4. Accounting: documents/ records
  5. Access Control: who has physical access to assets
  6. Independent verification: double check errors and misrepresentations
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13
Q

With in Control activites it breaks down to-two further options:

A

IT controls and Application controls

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14
Q

IT controls:

A
  • IT control environment -sets tone
  • Access control: who can access this info
  • Change management controls: auhtorized and tested
  • Project development and acquisition controls: software development life cycle
  • Computer operations control: antivirus, backup, recovers, downtime, patches
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15
Q

Application controls

A

ensure validity, completeness and accuracy of transactions

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16
Q

What are the following?

  • field checks
  • size checks
  • range checks
  • validity checks
  • completeness checks
  • reasonableness checks
  • check digit verifications
  • closed-loop verifications
A
  • (character type)
  • fits
  • within
  • refrence
  • no missing
  • logical relationship
  • algorithm
  • retrieve and display
17
Q

Application control has three subpoints which are

A

input/ processing/ output

18
Q

Processing contains

A
  • Prenumberd documents
  • Sequence checks
  • Batch totals
    Record count
    Financial control
    Hash total
  • Cross footing balances test
  • Concurrent updated controls
  • *
19
Q

Output

A

Authorization, print, copy, encryption

20
Q

Information and communication:

A

Ensure information flows within the firm: and external parties

21
Q

Monitoring activities

A

Monitor and make adjustments to internal controls on an ongoing basis, findings should be evaluated and deficiencies must be communicated

22
Q

what are the types of risk responses?

3

A
  • Inherent risk: will happen cannot do anything to prevent it
  • Control risk: failure to prevent due to the current internal controls
  • Residual risk: the risk that is remaining after taking the proper controls
23
Q

Risk Responses:

4

A
  • Reduce: reduce by implementing effective processes and internal controls
  • Share: outsourcing risk, insurance
  • Avoid: not engaging in the activities that would produce the risk
  • Accept: accepting risk and hoping to offset it
24
Q

What are the six types of physical internal controls per COSO?

A
  1. Authorization
  2. Segregation of duties
  3. Supervision
  4. Accounting documents/ records
  5. Access control
  6. Independent verification
25
Q

What are the two types of IT internal controls per COSO?

A

IT general controls
IT application controls

ACCGT 333 (3 decks)

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