Chapter 7: Understanding the Client's Internal Controls

Question 1

Internal Control

Answer 1

is the system designed, implemented, and maintained by those charged with governance to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.

Question 2

What are seven objectives of internal controls?

Answer 2

1) Real
2) Recorded
3) Valued
4) Classified
5) Summarized
6) Posted
7) Timely

Question 3

What are the six types of controls?

Answer 3

• Performance Review (actual vs. budget)
• Authorization Controls
• Physical Controls (of assets and records)
• Information Processing (manual vs. automated)
• Account Reconciliations
• Segregation of Duties

Question 4

Preventive Controls

Answer 4

can be applied to each transaction during normal processing to avoid errors occurring.

Question 5

Detective Controls

Answer 5

controls are necessary to discover fraud or errors that have occurred during the transaction process.