Internal Control

Question 1

What are the objectives of I/C?

Answer 1

ACE
Accurate and reliable financial reporting
Compliance with laws and regulations
Effectiveness and efficiency of operations

Question 2

What the 5 components of I/C?

Answer 2

CRIME
Control Environment
Risk Assessment
Control Activities
Info and Communication
Monitoring

Question 3

What are factors of control environment?

Answer 3

CHOPPER
Commitment to competence
Human resource policies
Organizational structure
Participation of governance
Philosophy of management
Ethical values and integrity
Responsibility assignment

Question 4

What risks are included in risk assessment?

Answer 4

Changes in operating environment
New personnel
New info systems
Rapid growth
New technology
New lines of business
Corporate restructuring
Foreign operations
Accounting pronouncements
Reviews of operating performance

Question 5

What is included in control activities?

Answer 5

PIPS
Performance reviews
Info processing
Physical controls
Segregation of duties - ARCCS

Question 6

What is segregation of duties?

Answer 6

ARCC
Authorization
Recording
Custody
Comparisons

Question 7

What are the steps for understanding I/C?

Answer 7

UPDATED
Understand
Policies
Document
Assess RMM
Test of controls
Evaluate/reassess
Document conclusion

Question 8

What is included in risk assessment procedures?

Answer 8

Analytical procedures
Inquiries of management
Inspection
Observation

Question 9

What are techniques to document understanding of I/C?

Answer 9

FIND
Flowchart
Internal Control Questionnaire
Narrative or memorandum
Decision table

Question 10

What are the 4 procedures for testing controls?

Answer 10

RIIO
Reperformance
Inspection
Inquiry
Observation

Question 11

What are inherent limitations to I/C?

Answer 11

COCO
Collusion
Override by management
Competence/human error
Obsolescence

Question 12

What types of control activities should be included in an I/C questionnaire?

Answer 12

PRAISE
Physical controls
Recording
Authorization
Independent checks
Segregation of duties
Evaluate performance

Question 13

What is a material weakness?

Answer 13

Deficiency in I/C that creates a reasonable possibility that a material misstatement exists

Question 14

What is significant deficiency?

Answer 14

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

Question 15

What indicates a material weakness exists?

Answer 15

Ineffective oversight
Restatement of prior years’ F/S
Material misstatements that would not be identified by company’s I/C
Fraud by senior management

Question 16

What are characteristics of I/C report under F/S audit?

Answer 16

Only test controls intend to rely on
No opinion
Issue letter of recommendation
Purpose of audit is for opinion on F/S but not I/C
Identify significant deficiency and material weakness
Limited use statement
Must provide written communication w/in 60 days to management for control deficiency, significant deficiency, and material weakness
Must provide written communication w/in 60 days to governance for significant deficiency and material weakness

Question 17

What are characteristics of I/C report under attestation engagement?

Answer 17

Must test all controls
Give opinion
Describe inherent limitations
General use statement
Same written communication requirements as F/S audit

Question 18

What are characteristics of I/C report under PCAOB audit?

Answer 18

Must test all controls
Give opinion
Describe inherent limitations
Same written communication requirements as F/S audit except must be by report release date

Question 19

What is included in report on I/C for attestation engagement?

Answer 19

Title that includes word “independent”
Statement of management responsibilities of maintaining effective I/C and evaluating its effectiveness
Identify management’s assertion of I/C
Statement of responsibility to express opinion
Statement that audit was performed in accordance with AICPA standards
Indication that auditor believes examination sufficiently supports opinion
Definition of I/C and inherent limitations
Auditor’s opinion
Auditor’s signature and date of report