Evaluating Internal Control Flashcards
1
Q
Identify three inherent limitations of internal controls.
A
- )Cost of controls should not exceed expected benefits.
- )Mistakes may occur due to carelessness, fatigue, misjudgments, and so on.
- )Segregation of duties may break down due to collusion or management override of internal controls.
2
Q
Identify two reasons for assessing control risk at the maximum level.
A
- )The auditor believes that the design of internal control is ineffective.
- )The auditor believes that reliance on internal control (and performing applicable tests of control) is not an efficient audit strategy compared to a wholly substantive audit approach.
3
Q
When should the auditor assess the design effectiveness of internal control?
A
In planning every audit under generally accepted accounting standards (GAAS), as a basis for determining the nature, timing, and extent of further audit procedures
4
Q
When should the auditor assess the operating effectiveness of internal control?
A
Whenever the auditor contemplates a reliance strategy (which means the same thing as “assessing control risk at less than the maximum level”) and only after performing the appropriate tests of control