Internal Control - Trans Cycles

Question 1

Completeness Assertion

Answer 1

• Completeness deals with whether all transactions are recorded
• an example would be the comparison of securities in the bank safe-deposit box with recorded investments may reveal securities which are in the safe-deposit box but are not recorded.

Question 2

Segregation of functional responsibilities calls for separation of

Answer 2

Segregation of the functional responsibilities requires separation of ARC

• authorization
• recording
• custodial functions.

Incompatible functions are those that place any person in a position both to perpetrate and to conceal errors and irregularities.

Thus, those that authorize transactions should be separated from those who account for the transactions and from those who have custody of any related assets

Question 3

Name the four assertions that professional standards identify for account balances at the end of the period:

Answer 3

• Existence
• Completeness
• Rights and Obligations
• Valuation and Allocation

Question 4

When no audit trail exists professional standards suggest

Answer 4

The professional standards suggest that when no audit trail exists an auditor should use the observation and inquiry techniques since no documentation is involved

Question 5

Understanding of Internal Control

Answer 5

AU-C 315 requires that the auditor document the understanding of the entity’s internal control for audits conducted in accordance with GAAS

Question 6

Objectives of Internal Control

Answer 6

Objectives of internal control over financial reporting are to render reasonable assurance that assets are safeguarded from unauthorized use or disposition and that financial records are sufficiently reliable to permit the preparation of financial statements