Internal Control Flashcards
What is internal control?
Provides reasonable assurance that
- ) Material misstatements will be prevented
- ) reliability and integrity of F/S will be preserved
- ) Assets are protected against misuse.
Examination of I/C is required by mgmt under?
Sarbanes-Oxley
Under Sarbanes-Oxley what must management do?
- ) CEO/CFO must disclose deficiencies
- ) Mgmt must assess I/C
- ) Mgmt must certify F/S
What type of relationship does I/C have with Substantive Testing?
An inverse relationship
Stronger I/C =
Less testing needed
Weaker I/C =
More testing needed
What are the 3 objectives of I/C?
- ) Reliability of Financial Reporting
- ) Operational efficiency/effectiveness
- ) Compliance with Law and Regulations
What are the 5 components of I/C?
- ) Control environment
- ) Risk assessment
- ) Control activities
- ) Information and communication
- ) Monitoring
What does the control environment assessment do?
Sets tone for the entire company
What are the 8 questions that the control environment assessment should address?
- ) How are mgmt’s integrity/ethics
- ) Is mgmt competent
- ) Healthy organizational structure
- ) Appropriate HR policies
- ) Authority/responsibility assignments
- ) What is mgmt’s style
- ) Is mgmt agressive
- ) Are the Board/Audit Committee actively involved
What is the risk of material misstatement? (RMM)
determines acceptable level of detection risk
What is detection risk? (DR)
Detection risk determines the nature, timing, and extent of audit procedures
What type of growth is considered risky?
Rapid
What are 3 risk assessment questions to ask about mgmt?
How does mgmt:
- ) Identify risks
- ) Estimate significance
- ) Assess occurrence likelihood
When performing a risk assessment what are the major changes that need to be addressed?
- ) operations
- ) personnel
- ) systems
- ) IT
- ) products
- ) corporate organization
- ) foreign ops