MCQ AUD 3.7 Flashcards
when planning an audit
knowledge of internal controls should be used to identify the material misstatements
Management philosophy and operating style encompass borad range of charecteristics.
management approach to taking and monitoring business risks managements attitude towards financial reporting, and management attitudes towards information processing and accounting functional and personal.
analytical procedures
Industry gross margin information
confirmation of receivables
budgets and forecasts
may be used as a substantive test
Control environment
control environment represents the collective efforts of various factors on establishing mitigating the specific policies and procedures. such factor include management philosophy and operating style the entity’s organizational structure the participation of those charged with governance methods of assigning responsibility and human resource policies and practices
Auditor should understand entitys IT
to understand accounting estimate
Information and communication
relates to Identification, capture and exchange of information
When designing internal control
Cost benefit relation should be weighed
Understanding internal controls Primarily to determine
substantive tests, then test of controls, attribute test, compliance test
Ultimate purpose of assessing control risk is
to contribute to the auditors evolution of risk that material misstatement exits in financial statements
Necessary in a financial statement audit
an understanding of internal control relevant to entity’s financial reporting objective
controls relevant to financial audit
Compliance with tax regulations, use of passwords to limit data access, and generation of reports to facilitate variance analysis are all important controls related to financial reporting
service auditor
substantive controls are not performed
entity level controls
include relate to control environment
the risk assessment process
and the policies over risk management practices
test of controls is to
evaluate whether internal controls operated effectively
most assurance of internal control
observation of client personnal
