Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Audit > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Internal Audit definition

A

It is an independent, objective, assurance and consulting activity designed to add value and improve an organizations operations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How do Internal Auditors remain independent?

A

They report to the audit committee/board of directors
They are independent in function

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What types of audits do Internal Auditors do? (READ)

A

Financial
Compliance
Operational
Governance
Quality Control
Environmental
Sustainability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What 3 types of audits do Governmental Auditors perform? (READ)

A

Financial Statement Audits
Attestation Audits
Performance Audits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

GAGAS definition

A

Generally
Accepted
Governmental
Auditing
Standards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

GAO definition

A

Governmental Accountability Office
Its the accounting, auditing, and investigative agency of the federal government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Predication definition

A

Hints or clues that fraud may be occuring

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

ACFE definition

A

Association of Certified Fraud Examiners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What group or role (according to the ACFE) is responsible for detecting the most organizational fraud?

A

Employees at 55%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How is Fraud Examination different from Financial Statement Audits?

A

Fraud Examination specifically checks for fraud
Financial Statement Audits check the financial statements for correctness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Four Audit Objectives of an Internal Audit (READ)

A
  1. Recognizing and analyzing the industry, business, and operational risks
  2. Improving the effectiveness and efficiency of the operations
  3. Ensuring compliance with management directives
  4. Serving as managements representative
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

3 IIA standards (READ)

A

Attribute Standards
Performance Standards
Implementation Standards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Three parts of the CIA exam

A

Internal Audit Basics
Internal Audit Practice
Internal Audit Knowledge Elements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Do Internal Audit Reports include both favorable and unfavorable findings?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

5 Things Unfavorable Internal Audit findings should include (READ)

A
  1. Condition - what was found
  2. Criteria - basis for determining that the condition was improper
  3. Cause - Why did this happen
  4. Effect - Why is this bad
  5. Recommendation - What should be done about it
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is known as ‘The Yellow Book’?

A

GAGAS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Extra reports that GAGAS requires (READ)

A

Report on the fairness of the entity’s financial statements
Report on the entity’s compliance with laws and regulations
Report on the auditee’s internal control and control risk assessment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What did the Single Audit Act of 1984 and the Amendments of 1996 accomplish?

A

They allow organizations to obtain a single audit that all agencies can rely on

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the Chain of Custody?

A

It is the evidence, interviews, interrogations, confessions, documents obtained by subpoena, and other things that are collected during a fraud case

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the 3 Types of Fraud?

A

Corruption
Asset Misappropriation
Financial Statement Fraud

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How long do most fraud cases last for?

A

About 12 months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the top 3 departments that commit fraud?

A

Operations (15%)
Accounting (12%)
Executive/Upper Management (11%)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are the 4 points of the Fraud Diamond?

A

Pressure/motive
Opportunity
Rationalization
Ability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What 3 bits of info is the auditor seeking when talking to a predecessor auditor?

A

Management integrity
Disagreements with management
Reason for auditor change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Audit Plan

A

The comprehensive list of the specific procedures that the audit team needs to perform

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the overall goal of an audit plan?

A

To gather sufficient appropriate evidence on which to base an opinion on the financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are some roles that are used to staff an audit? (READ)

A

Audit engagement partner
Audit manager
IT Auditor
Tax Specialist
Quality Assurance Partner
Audit Staff

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What role do IT Auditors play in an audit? (READ)

A

They evaluate the effect of computerized processing on the audit, understand the flow of transactions, and design and perform audit procedures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Audit Effeciency

A

The amount of work an auditor performs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Audit Effectiveness

A

How good the decisions or judgements an auditor makes are

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Auditor responsibilities when working with an auditor engaged specialist

A

You must know their qualifications and they should be unrelated to the client

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Auditor responsibilities when working with a company specialist

A

You must know their qualifications and consider their objectivity since they work with the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What are the 3 things that Time Reports are used for?

A

Evaluating efficiency of audit team members
Compiling a record for billing
Compiling a record for planning the next audit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Tracing

A

Looks at the source document info to the financial statements
Front end to Back end
Deals with Completeness assertion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Vouching

A

Looks at financial statement info to the source documents
Back end to Front end
Deals with Existence assertion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Control Tests

A

They test the operating effectiveness of client internal control activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Substantive tests

A

Produce evidence about managements assertions related to the amounts and disclosures in a client’s financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What are the 2 types of substantive tests?

A

Substantive Analytical Procedures
Tests of Details

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What 4 audit procedures are related to control testing?

A

Documentary (inspection of)
Inquiry
Observation
Reperformance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Is an attempt to communicate to the previous auditor required?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What is an Engagement Letter

A

A letter to management that acts as a contract between the auditor and a client

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

3 goals of audit planning (READ)

A
  1. Make sure firm has enough staff to conduct audit in a timely and profitable manner
  2. Determine materiality
  3. Outline specific audit procedures that need to be executed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

For new clients do companies use experienced or new staff?

A

Experienced because of the complex transactions of a new company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Do external auditors want to work with internal auditors?

A

Yes because it helps with effeciency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What 2 things do external auditors have to consider before working with internal auditors?

A

The internal auditors objectivity and competence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Are audit specialists usually referred to in the audit report?

A

Not unless their findings modify the report itself

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What is the Time Budget used for?

A

Used to maintain control of the audit by identifying problem areas early on to ensure completion on a timely basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Materiality

A

An amount that would influence the decisions of users

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Ultimately, what is materiality subject to?

A

Professional Judgement

49
Q

Analytical Procedures

A

When an auditor compares the expectation to a recorded balance

50
Q

When are Analytical Procedures required?

A

During the planning and review phases of the audit

51
Q

Permanent Files

A

Information of continuing audit significance

52
Q

Current Files

A

All documentation that is sufficient to support all conclusions on the audit

53
Q

How long should documentation be retained?

A

7 years from report release date or last day of fieldwork (if no report)

54
Q

Audit Risk

A

The risk that the auditor will express an inappropriate audit opinion when the financial statements are materially misstated

55
Q

Detection Risk

A

The risk that errors or fraud will not be caught by the auditors procedures

56
Q

All 4 types of risk in an audit are what?

A

Set, assessed, and calculated by the auditor

57
Q

What is the correlation between the nature timing and extent of audit procedures and detection risk?

A

The better the nature, timing, and extent of procedures the less likely you will not detect something

58
Q

3 characteristics of Fraud Risk Factors

A

Managements characteristics and influence
Industry conditions
Operating characteristics and financial stability

59
Q

What characteristics of an account balance would affect the inherent risk assessment? (READ)

A

Dollar size of accounts
Liquidity of accounts
Volume of transactions
Complexity of transactions
Subjective estimates

60
Q

What is the auditors responsibility for revenue in fraud risk assessment?

A

Revenue is the only account that for every audit must be assessed for improper recognition and must have an explanation why it is not a risk

61
Q

What are the 2 types of noncompliance with laws and regulations

A

Direct Effect Noncompliance
Indirect Effect Noncompliance

62
Q

Direct Effect Noncompliance

A

Noncompliance that produces direct and material effects on the financial statements

63
Q

Indirect Effect Noncompliance

A

Noncompliance that is not related to specific accounts or disclosures on the financial statements

64
Q

Inherent Risk

A

The possibility that a claim about the financial statements is incorrect

65
Q

Control Risk

A

The likelihood that the clients internal control system will fail to prevent or detect a material misstatement

66
Q

Fraud

A

The act of knowingly making material misrepresentations of fact with the intent of inducing someone to believe the falsehood and act on it

67
Q

Employee Fraud

A

The use of fraudulent means to misappropriate funds or other property from an employer

68
Q

Embezzlement

A

Type of fraud involving employees or nonemployees wrongfully misappropriating funds or property in their care

69
Q

Larceny

A

Simple Theft

70
Q

Defalcation

A

Another name for employee fraud, embezzlement, and larceny

71
Q

Are auditors required to obtain a thorough understanding of their clients business before audit planning?

A

Yes

72
Q

What do Preliminary Analytical Procedures do? (READ)

A

They identify potential problem areas
They provide a standard starting place to start examining the financial statements
They help familiarize the auditor with the clients business and identifying areas of risk

73
Q

5 steps of completing analytical procedures (READ)

A
  1. Develop an expectation
  2. Define a significant difference
  3. Compare expectation with recorded amount
  4. Investigate significant differences
  5. Document each of the preceding steps
74
Q

Are Audit Team Brainstorming Discussions required?

A

Yes

75
Q

What is discussed in Audit Team Brainstorming sessions?

A

Previous experiences with client
How fraud might happen within the client
Procedures that might detect fraud

76
Q

Who should evidence of fraud be taken to by the auditor?

A

To management that is at least one level above the people involved

77
Q

What level of fraud is material?

A

ANY fraud committed by management

78
Q

Audit Strategy Memorandum

A

Memo that establishes an overall audit strategy that sets the scope, timing, and direction for auditing each relevant assertion

79
Q

What are the 3 limitations to an entitys internal control system?

A

Human error
Management override
Collusion

80
Q

What are the 5 components of an entitys internal control system?

A

Control activities
Risk assessment
Information and communication
Monitoring
control Environment

81
Q

Internal Control System Control Activities

A

The specific polices and procedures that help ensure management directives are carried out

82
Q

Internal Control System Risk Assessment

A

Managements identification, analysis, and management of relevant risks to achieving objectives

83
Q

Internal Control System Information and Communication

A

Auditors must understand the information systems that are relevant to the financial reporting

84
Q

Internal Control System Monitoring

A

Good monitoring systems have ongoing and separate evaluations that report on deficiencies

85
Q

Internal Control System Control Environment

A

Sets the tone at the top of the organization that influences the control consciousness of companies

86
Q

What is the external auditors responsibility for a clients internal control system?

A

They must audit and issue an opinion on the effectiveness of the internal control over financial reporting (ICFR)
Assess control risk to determine nature timing and extent of procedures performed

87
Q

What is managements responsibility for their own internal control system?

A

They must establish and maintain adequate internal control over the financial reporting
Also required to issue a self grading report on internal controls

88
Q

Which of the 5 components of an internal control system is considered the foundation and why?

A

Control Environment because it influences the control consciousness of a company

89
Q

What are some of the responsibilities of the audit committee? (READ)

A

Appointment, compensation, and oversight of the public accounting firm conducting the entity’s audit
Resolution of disagreements between management and the audit team
Approval of non-audit services provided by the public accounting firm performing the audit

90
Q

What are the 3 functional duties in an organization that must be separated?

A

Authorization
Recording
Custody

91
Q

Internal Control

A

A process designed to provide reasonable assurance regarding reliability of financial statements, efficiency of operations, and compliance with laws and regulations

92
Q

COSO Acronym (READ)

A

Committe Of Sponsoring Organizations of the national commission of fraudelnt financial reporting

93
Q

What is COSO also referred to as?

A

Treadway Commission

94
Q

Who created the Components of Internal Control?

A

COSO

95
Q

Audit Committee

A

Subcommittee of the board of directors
Composed of 3 to 6 outside members of the board
One member must be a financial expert

96
Q

What does the Audit Committee do?

A

It provides a buffer between the audit tam and the operating management

97
Q

Incompatible Responsibilities

A

Combinations of responsibilities that place a person alone in a position to create and conceal misstatements

98
Q

4 types of functional responsibilities that should be performed separately of each other

A

Authorization to execute transactions
Recording transactions
Reconsiliation of existing assets to recorded amounts
custody of assets involved in the transactions

99
Q

What is the main reason an auditor needs to understand a clients internal control system?

A

To determine the nature, timing, and extent of the audit procedures needed

100
Q

3 ways an auditor can document their understanding of a clients internal control system

A

Narrative description
Questionnaires
Flowcharts

101
Q

4 primary audit procedures auditors use to test internal controls from least to most persuasive

A

Documentation
Inquiry of client personnel
Observation of control activity being performed
Reperformance of control activity

102
Q

Entity Level Controls

A

Controls that are related to the entire internal control system and the reliability of the financial statements as a whole

103
Q

Transaction Level Controls

A

Controls that pertain to specific classes of transactions, account balances, and disclosures

104
Q

3 reports/opinions available for an auditor to give in an ICFR

A

Unqualified - Everything is good
Adverse - Something is off
Disclaim - No opinion given

105
Q

What is the main difference between a significant deficiency and a material weakness?

A

The severity of the deficiency

106
Q

Significant Deficiency

A

A deficiency that is important enough to merit attention to those charged with governance but is less severe than a material weakness

107
Q

Material Weakness

A

A weakness that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis

108
Q

What type of SOC Report is required and why?

A

The SOC 1 Type 2 report because only the type 2 describes the tests of operating effectiveness and provides an opinion on it

109
Q

Compensating control

A

A control activity that is relied upon because a different control is missing, improperly designed, or operating innefectively

110
Q

3 Phases of Internal Control Evaluation (READ)

A
  1. Understand and document internal controls
  2. Assess control risk
  3. Identify controls to test and perform a test of controls
111
Q

Which form of Internal Control Documentation is the most common?

A

Narrative Description, which is usually paired with flowcharts

112
Q

2 situations where auditors can choose not to test internal controls

A
  1. the internal control system is too ineffective to rely on
  2. For nonissuers it would take more time to test the control activities than it would to perform the substantive tests
113
Q

What is required under Sarbanes-Oxley Section 404

A

Management assessment of the effectiveness of their entity’s internal control
Independent Auditor assessment of effectiveness of internal controls

114
Q

What is the auditor’s responsibility for Internal controls

A

They are required to obtain reasonable assurance of effective controls and to determine whether there is a material weakness at end of year or not

115
Q

Does the same auditor have to do both the financial statement audit and the internal control audit

A

Yes

116
Q

What is the Top-Down Process for Internal Controls

A

Starting at the Financial Statements and using them to figure out the risks and what to controls to test

117
Q

When are SOC reports used?

A

When anything in an internal control system is outsourced, auditors send SOC 1 Types 2 reports to get a good amount of information from the 3rd party

118
Q

Design Deficiency

A

A problem relating to either a necessary control that is missing or an existing control that is so poorly designed that it fails to satisfy the controls objective

119
Q

Operating Deficiency

A

When a properly designed control is either ignored or inappropriately applied

120
Q

Is “management review” a valid internal control?

A

No

121
Q

What is the special provision for issuers with common equity of less than $75 million?

A

They do not have to have an independent auditor report on the effectiveness of their internal controls

Audit (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions