Chapter 3. IC Concepts And Standards

Question 0

In gaining an understanding of internal control, an auditor is required to consider

Answer 0

In gaining an understanding of internal control, an auditor is required to consider
factors that affect the risk of material misstatement,

identify the types of potential misstatements that can occur, and

ascertain whether internal controls have been placed in operation.

The auditor is NOT required to obtain knowledge about the operating effectiveness of internal control (i.e. perform tests of controls).

Question 1

Procedures performed to evaluate control risk includes…

Answer 1

Procedures performed to evaluate control risk include inquiries of personnel; inspection of documents and records; observation of activities and operations; and reperformance of the control procedure.

Question 2

In assessing control risk below maximum, the auditor must:

Answer 2

In assessing control risk below maximum, the auditor must:

1) obtain an understanding of the internal control structure;
2) identify specific controls relevant to specific financial statement assertions; and
3) test the identified controls to determine if they are operating effectively. Thus, the auditor would evaluate the effectiveness of internal control with tests of controls.