Internal Control - Concepts and Standards

Question 1

The 3 objectives of internal controls

Answer 1

1. Reliability of financial reporting
2. Effectiveness and efficiency of operations
3. Compliance with applicable laws and regulations.

Question 2

3 risk assessment procedures that might be used by an auditor to obtain an understanding of the entity and its environment, including its internal control

Answer 2

1. Inquires of management and others
2. Observation and inspection
3. Analytical procedures

Question 3

The 5 interrelated components of internal controls

Answer 3

C-CRIM

1. Control Environment
2. Control Activities
3. Risk Assessment
4. Information and Communication systems
5. Monitoring

Question 4

Define “Risk Assessment”

Answer 4

Policies and procedures involving the identification, prioritization, and analysis of relevant risks as a basis for managing those risks.

Question 5

The 5 “Control Activities”

Answer 5

SCARE

1. Segregation of duties
2. Controls - “physical controls”
3. Authorization
4. Review - “performance review”
5. EDP/IT - “information processing”

Question 6

Control Risk should be assessed in terms of what?

Answer 6

The financial statement assertion

Question 7

3 Limitations to controls

Answer 7

1. Human judgement & performance
2. Collusion
3. Management Overrride

Question 8

Does an auditor need knowledge of the operating effectiveness of controls to gain an understanding of controls?

Answer 8

No

Question 9

What can an auditor assess while they are gaining an understanding of an entity’s control structure?

Answer 9

Control Risk