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Assurance > Chapter 5 - Intro to internal control and info flow > Flashcards

Chapter 5 - Intro to internal control and info flow Flashcards

1
Q

What is a system of internal control?

A

System designed and maintained by those charged with governance and management of assurance

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2
Q

What are the steps when implementing internal controls?

A
  1. Identify risks
  2. Implement controls to mitigate
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3
Q

What is the purpose of internal controls?

A
  • Minimise risks
  • Ensure effective functioning
  • Compliance with rules
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4
Q

What are the limitations of internal controls?

A
  • Human error possibility
  • Collusion
  • Unusual transactions
  • Hard for small companies to implement
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5
Q

What are the 5 components of internal control set out by ISA 315?

A
  • Control environment
  • Entity’s risk assessment process
  • Entity’s process to monitor internal controls
  • Info system and communication
  • Control activities
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6
Q

What does the extent of reliance on internal control depend on?

A

Nature of the engagement and practitioner’s expectations of effectiveness of controls

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7
Q

What is the control environment?

A

Includes the governance and management functions and the attitudes, awareness and actions of those charged with governance and management

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7
Q

What is the audit committee?

A

Sub-committee of the board of directors responsible for overseeing entity’s internal controls

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7
Q

What happens in a strong control environment?

A

Management ensures individuals have the competence to perform roles

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8
Q

What does the audit committee comprise of?

A

NEDs

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8
Q

What does the UK corporate governance code require the audit committee to have written terms of reference on?

A
  • Review integrity of financial statements
  • Review internal financial controls
  • Monitor internal audit function
  • Monitor external auditor
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9
Q

What is the risk assessment process?

A

Iterative process for identifying and analysing risks

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10
Q

What is a business risk?

A

Risk resulting from significant conditions that could adversely affect achievement of objectives

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11
Q

What is the role of a company’s internal audit department?

A

Review overall control system

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12
Q

Are smaller companies likely to have an internal audit function?

A

No

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13
Q

What is meant by info system and communication?

A

Components of internal control that includes the financial reporting system and records of transactions

14
Q

What are control activities?

A

Policies and procedures that help ensure management directives are carried out

15
Q

What is the most tangible internal control for auditors?

A

Control activities

16
Q

What forms can control activities take?

A

Manual or computerised

17
Q

What are the different types of control activity?

A
  • Authorisation and approvals
  • Reconciliations
  • Verifications
  • Physical controls
  • Segregation of duties
18
Q

What are the risk to cyber security?

A
  • Human threats
  • Fraud
  • Deliberate sabotage
  • Viruses
  • Malware
  • DoS
19
Q

What suggestions to combatting cyber risks did the IACEW 2014 Audit insights report make?

A
  • Communications is a key barrier
  • Organisational structure need to define responsibility
  • NEDs and audit committee need to play an active role
20
Q

What are the 3 types of docs used for recording the understanding of the business?

A
  • Narrative notes
  • Questionnaires/checklists
  • Diagrams
21
Q

What is the best way of recording relationships and reporting lines?

A

Organisation charts and family frees

22
Q

What is the limitations of using a flowchart?

A
  • Can be difficult for reader to assimilate
  • Time consuming to construct
23
Q

What is a walk through procedure?

A

Procedure that tracks a few transactions from beginning to end through the financial reporting system

24
Q

When are walk through procedures performed?

A

Near the start of the fieldwork stage

25
Q

What type of control is counting petty cash?

A

Physical

26
Q

What type of control is reviewing master files?

A

Info processing control

27
Q

What component does a staff training program fall under?

A

Control environment

28
Q

What component does a review of actual performance vs budget fall under?

A

Control activity

29
Q

What component does the internal audit function fall under?

A

The entity’s process to monitor the system of internal control

Assurance (16 decks)

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