Chapter 7 SB HW

Question 1

The risk that a misstatement could result in a material misstatement of the financial statements is called a ___________ risk.

Answer 1

financial reporting

Question 2

Written representations from management related to the audit of ICFR include management ______.

Answer 2

1. Responsibility for establishing and maintaining effective ICFR
2. Conclusion about the effectiveness of the entity’s ICFR as of a specified date

Question 3

The auditor’s report on the effectiveness of internal control must ______.

Answer 3

1. be addressed to the shareholders and BOD
2. Contain the basis for the auditor’s opinion

Question 4

The evaluation of the ___________ effectiveness of a control considers whether the person performing the control possesses the necessary authority and competence to perform the control effectively.

Answer 4

operating

Question 5

A major premise of AS 2201 is that
_____ assessment underlies the entire audit of ICFR.

Answer 5

risk

Question 6

Entity-level controls that require specific evaluation by the auditor are the ______.

Answer 6

1. Control environment
2. Period-end financial reporting process

Question 7

The best way to identify potential sources of misstatements is often ______.

Answer 7

performing walkthoughs

Question 8

The financial statement amounts or total of transactions exposed to the deficiency, and the volume of transactions involved or expected, are factors that affect whether the magnitude of a misstatement might result in a _______.

Answer 8

material weakness

Question 9

When an entity has a material weakness, it should take steps to correct it, which is referred to as ____________.

Answer 9

remediation

Question 10

Unless a longer period of time is required, PCAOB standards require the auditor to retain audit documentation for the ICFR and financial statement audit for ______ years.

Answer 10

7

Question 11

The phrase “All material respects” means that the entity’s ICFR ______.

Answer 11

is free of any material weakness

Question 12

In addition to material weaknesses and significant deficiencies, the auditor should communicate, in writing, to management all ________ deficiencies identified during the audit.

Answer 12

control

Question 13

If the auditor discovers fraud involving senior management while auditing ICFR, the auditor must communicate the matter directly to the ______.

Answer 13

audit committee

Question 14

Disadvantages of GAS include ______.

Answer 14

1. Data must be electronic
2. Limited ability to verify programming logic

Question 15

Creating _______ can be very time consuming.

Answer 15

test data

Question 16

Test data _________.

Answer 16

1. Should include both valid and invalid data
2. Ensures the accuracy of computer processing of transactions

Question 17

A control issue does not rise to the level of control deficiency if the likelihood is ______.

Answer 17

remote

Question 18

When it comes to ICFR documentation, management should ______.

Answer 18

focus on controls deemed adequate to address financial reporting risk

Question 19

Controls that are important to the auditor’s conclusion about whether the entity’s controls sufficiently address the assessed risk of misstatement are often referred to as _______ controls.

Answer 19

Key

Question 20

Audit procedures to test and evaluate the design effectiveness of controls might also provide some evidence about _____________.

Answer 20

Operating effectiveness