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ACCO 360 > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

Def: internal control

A

policies + procedures instituted and maintained by the management to provide reasonable assurance that management’s objectives are met

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2
Q

who’s responsibility is internal controls

A

management’s

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3
Q

primary objectives of effective internal controls (4)

A
  1. strategic, high level that support the mission
  2. reliability of financial reporting
  3. efficiency and effectiveness of operations
  4. compliance with laws and regulations
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4
Q

management must ___+____ . the entity’s internal controls

A

establish + maintain

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5
Q

if the company is public, management is required to

A

publicly report on operating effectiveness of internal controls in financial reports

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6
Q

auditors are responsible for

A

understanding entity internal control relevant to the audit

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7
Q

why must auditors understand

A

to identify the risks of material misstatement at the financial statement and assertion level

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8
Q

when must auditor obtain understanding of controls

A

ALL the time even if he does not intend on placing reliance on internal controls

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9
Q

when assessing control risk, auditors are concerned with (2)

A
  1. entity level controls

2. transaction controls

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10
Q

Def: entity level controls

A

pervasive in nature and not address particular transaction cycles

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11
Q

entity level controls may prevent or detect and correct

A

misstatements in several cycles

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12
Q

def: transaction controls

A

implemented for specific transaction risks

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13
Q

transaction controls specifically prevent or detect and correct

A

misstatements in classes of transactions, account balances or disclosures and their related assertions

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14
Q

before the auditor can conclude that the total for any given class of transactions is fairly stated

A

five audit objectives must be met

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15
Q

what are the 5 audit objectives (transaction)

A

occurrence, completeness, accuracy, cut-off and classification

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16
Q

5 components of COSO internal control framework

A
  1. control environment
  2. risk assessment
  3. control activities
  4. info and communication
  5. monitoring
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17
Q

principles associated with control environment (5)

A
  1. commitment to integrity and ethical values
  2. BofD oversight responsibility
  3. management structure, authority and responsibility
  4. commitment to competence
  5. establish and enforce accountability
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18
Q

principles with risk assessment (4)

A
  1. specifies relevant objectives
  2. identify and assess risk
  3. consider potential for fraud when assessing
  4. identify and assess significant changes
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19
Q

principles with control activities (3)

A
  1. select and develop control activities
  2. select and develop general controls over techno
  3. policies and procedures
20
Q

principles with info and communication (3)

A
  1. relevant and quality information
  2. communicate internal
  3. communicate external
21
Q

principles with monitoring (2)

A
  1. select, develop and perform ongoing and separate evaluations
  2. evaluate and communicate deficiencies
22
Q

def: control activities

A

actions established by policies and procedures to help ensure that management directives to mitigate risks are carried out

23
Q

Def: transaction controls

A

control activities to mitigate transaction processing risk for specific business processes

24
Q

control activities should be a combination of

A

preventive and detective controls

25
Q

def: preventive controls

A

controls designed to avoid errors or irregularities

26
Q

i.e. preventive controls

A

computer based and data entry

27
Q

why not take preventive controls?

A

cost vs. benefit analysis if something goes wrong its cheaper to fix it with detective controls

28
Q

def: detective controls

A

controls that identify errors or irregularities after they have occurred so corrective action can be taken

29
Q

controls over the business process are

A

what you want to see in an organization

30
Q

examples of controls in business process (5)

A
  1. proper authorization of transactions and activities
  2. adequate documents and records
  3. physical and logical control over assets and records
  4. adequate segregation of duties
  5. independent checks of performance, recorded data and actual results
31
Q

def: business process

A

set of manual and/or computerized procedures that collect, record and process data and report results

32
Q

business process can also be known as

A

application system

33
Q

def: proper authorization of transaction and activities

A

authorization encompasses more than transactions, new programs and changes to programs since this affects the way that transactions are processed

34
Q

adequate documents and records applies to?

A

paper or electronic files on which transactions are entered and summarized

35
Q

adequate documents should be (2)

A
  1. pre-numbered or automatically numbered consecutively

2. prepared at the time a transaction takes place or asap after

36
Q

why pre-numbered/automatically numbered? (2)

A

facilitate control over missing record + aid in locating records when they are needed later

37
Q

which audit objective does pre-numbered documents help?

A

completeness (transaction related)

38
Q

why should there be physical and logical control over assets and records?

A

stolen, duplicated, damaged or lost

39
Q

an important safeguard is the use of

A

physical precautions

40
Q

Which duties should be segregated? (6)

A
  1. custody of assets
  2. recording/data entry
  3. systems development/ acquisition and maintenance
  4. computer operations
  5. reconciliation
  6. authorization
41
Q

example of segregation of duties

A
  1. custody assets + accounting
  2. authorization of transaction + custody of same assets
  3. operations + record keeping
  4. reconciliation +data entry
  5. IT duties + user departments
42
Q

if there is issue in segregation of duties how is risk affected?

A

increase in fraud risk –> increase in control risk

43
Q

why segregate duties?

A

reduce opportunity for a person to be in a position to perpetuate and conceal a fraud

44
Q

need for independent checks of performance arises because

A

internal controls tend to change over time unless there is a mechanism for frequent review

45
Q

how to automate internal verifications?

A

computerized accounting systems

46
Q

how to complete understanding of internal controls in smaller firms

A

determine if client is auditable, assess management attitude and examine controls with accounting system

ACCO 360 (11 decks)

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