Mod 3 Wrong Answers Flashcards
In a flowchart:
What is the manual operation where a purchase order enters the flow chart afterwards?
A purchase order is being prepared
In a flowchart:
A trapezoid represents a…
Manual operation
In a flowchart:
A circle represents a…
2) what does it indicate?
Represents a connector
2) indicates document is entering or leaving that portion of the
Flow chart
In a flowchart:
What 4 parties receive purchase orders sent from the purchasing department?
1 stores
2 receiving department
3 vouchers payable department
4 vendors
In a flowchart:
What step takes place after goods are received in the receiving department?
Prepare a receiving report
In a flowchart:
A triangle symbol represents a…
File
In a flowchart:
Entering the triangle (file) are the approved but unpaid vouchers with the support of invoices, receiving reports, purchase orders and purchase requisitions. Because these vouchers are sent to the treasurer in order of due date this file is…
Unpaid voucher file, filed by due date
In a flowchart:
The step where the treasurer reviews documents and preparation of a check and remittance advice is followed by the step where…
Checks are signed and voucher package documents are cancelled
For a written communication to a non public client about significant deficiencies and material weaknesses identified during the audit, the report must state that the auditor…
Is not expressing an opinion on the effectiveness of internal control
When a customer credit file is being accessed, this makes it likely that…
A credit check is being performed
In a flowchart:
A cylinder represents a…
File
In a flowchart:
Under the computer processing department, When you are asked to identify a cylinder (file) document that is followed by a process that begins with “open orders” the cylinder represents…
An open order file
In a flowchart:
Under the sales department, when 2 copies of the sales order are being combined with the customer purchase order, through a manual operation (represented by a trapezoid), what is occurring?
Match customer purchase order with sales order
In a flowchart:
In the warehouse and shipping department, when the manual operation (trapezoid) includes 2 copies of the shipping document being combined with the sales order, what does the trapezoid represent?
Verify agreement of sales order with shipping document
In a flowchart:
The department is the warehouse and shipping department, the step this operation (trapezoid) is where shipping info is transmitted to the computer. What does the trapezoid represent?
Release goods for shipment
When a document is prepared through a computerized billing program its is…
The sales invoice
Sales invoice is normally sent to…2
1 The customer
2 accounts receivable department
In a flowchart:
In the computer processing department, Because the processing step afterwards includes updating the master files, the cylinder is…
The general ledger master file
In a flowchart:
In the computerized update program, master files are updated, general ledger transaction summary is prepared, accounts receivable ledger is prepared, the aged trial balance is prepared and…
The sales journal is prepared
In a flowchart:
When a sales journal is prepared in the previous step…
The accounting department will receive the sales journal
In a flowchart:
If an aged trial balance is prepared one step earlier…
The credit department will receive the aged trial balance
4 factors listed in entity’s control environment
1 audit committee
2 integrity
3 ethical values
4 organization structure
The Foreign Corrupt Practices Act…2
1 makes payment of bribes to foreign officials illegal
2 requires publicly held companies to maintain systems of
Internal control sufficient to provide reasonable assurance
That internal control objectives are met
Decision tables include various combination of conditions
That are…
Matched to one of several actions
Decision tables:
In an internal control setting, the various important controls are reviewed and based on a combination of answers received, an action…
Such as a decision on whether to perform test of controls is determined
Program flow charts simply…
Summarize the steps involved in a program
While decision tables may be designed using various cost benefit factors relating to the various conditions and actions…
They do not justify the program
AU-C 315 states that the auditor should obtain sufficient knowledge of the information (including accounting) system to understand…
The financial reporting process used to prepare the entity’s financial
Statements
including significant accounting estimates and disclosures
AU-C 315, also states that knowledge of information (accounting) system is obtained to help the auditor understand 4 things
1 entity's classes of transactions 2 how transactions are initiated 3 accounting records and support 4 accounting processing involved from initiation of transaction To inclusion in the financial statements
An auditor may compensate for a weakness in internal control by…
Increasing analytical procedures
When an auditor increases analytical procedures, this…
Decreases detection risk an a manner that counterbalances
weakness in internal control
Weakness in internal control is compensated for by an increase in…
Substantive testing
It is not generally appropriate to increase the judgement as to audit risk…
Based on the results obtained
The purpose of tests of controls is to…
Evaluate whether internal control operates effectively
Substantive tests, not tests of controls, are focused on…
Detection of material misstatements in account balances of
The financial statements
Auditor’s perform tests of controls to obtain…
Evidence on the operating effectiveness of controls to assess
Control risk
Test of controls include…4
1 inquiries of appropriate entity personnel
2 inspection of documents and reports
3 observation of application of policy or procedure
4 reperformance of application of policy or procedure
Performing tests of details of transactions to detect material misstatement pertains more directly to…
Detection risk rather than inherent or control risk
Obtaining an understanding of an entity’s information system and control environment is…
A preliminary step for considering control risk
Management’s report on internal control under Section 404a of SOX, must indicate management’s responsibility to establish and maintain adequate internal control, it need not indicate that…
Such control has no significant deficiencies
All material weaknesses are…
Control deficiencies
Control deficiency is a condition in which…
The operation of control does not allow management or employees
In normal course of performing their functions
To prevent or detect misstatements on a timely basis
Control deficiency does not explicitly consider…
Likelihood of loss
Basic information processing controls related to cash are an example of…
Compensating control which supplements basic underlying control
What is the relationship between examination of internal control and obtaining an understanding of internal control and assessing control risk as part of an audit?
Scope and purpose differ between the 2 types
Procedures followed are similar
“Has an employee ever been asked to override the process?” This would be an example of a question asked to…
Employee personnel during a walk through
A material weakness is determined by whether…2
1 There is more than a remote likelihood of a material loss occurring
Due to the control deficiency
2 the actual loss need not be material
Identify the circumstance that makes an account significant for purposes of a PCAOB audit of internal control:
Standard 5 requires…
Only more than a remote likelihood of material misstatement
The most likely significant deficiency relating to a client’s anti fraud programs is an audit Committee that is…
Passive
Example about applying a top down approach to identify controls to test in an integrated report
Certain effective entity level controls may allow auditor to
Omit additional testing beyond those controls
Starting at the top, in identifying controls to test in an integrated report, includes consideration of…
Financial statements and entity level controls first
Applying a top down approach to identify controls to test in an integrated audit does not mean starting with…
Assertions
Describe the contents of a report on the study of internal control that is based on criteria established by governmental agencies:
Report should indicate…
Matters covered by the consideration
Describe the contents of a report on the study of internal control that is based on criteria established by governmental agencies:
Report should indicate whether auditor’s consideration included…
Tests of controls with procedures covered by auditor’s
consideration
Describe the contents of a report on the study of internal control that is based on criteria established by governmental agencies:
The report should describe objectives and…
Limitations of internal control and the accountant’s evaluation
Thereof
Describe the contents of a report on the study of internal control that is based on criteria established by governmental agencies:
The report should state…
The accountant’s conclusion, based on the agency’s criteria
Describe the contents of a report on the study of internal control that is based on criteria established by governmental agencies:
The purpose of the report should be described and it should state…
That it should not be used for any other purpose
In a report on the study of internal control that is based on the criteria of governmental agencies, the agency’s name…
Should be included
Give an example of a procedure an auditor would most likely perform to test controls relating to management’s assertion about completeness of cash receipts for cash sales at a retail outlet
Cash registers and tapes helps assure all such sales are recorded
One would not expect a cash balance in the general ledger to…
Agree with bank confirmation request amount due to items in
Transit and outstanding at point of reconciliation
Identify the procedure that most likely would not be a control designed to reduce risk of errors in the billing process
2) why?
Reconciliation of the control totals for sales invoices with the
accounts receivable subsidiary ledger will follow billing
2) Thus billing errors will have already occurred
Computer programmed controls will assure…
Accuracy of the sales invoice
Matching of shipping documents with entries in the sales journal will provide assurance that…
All shipped items (sales) have been completely recorded
When the check signer stamps vouchers “paid” it is…
Unlikely to be paid a second time since individual will notice
Stamp on voucher the second time it’s submitted
An individual who signs checks should be responsible for…
2) why?
Mailing them
2) to avoid a variety of fraud in which checks are improperly
Converted into cash by company employees
A person who signs checks should determine…
That proper supporting documents exist and should cancel that
Documentation after payment is made
The purchase department will normally…
Approve purchase orders (generated from user departments or
Stores) and negotiate terms of purchase wi vendors
User groups or stores will authorize…
Requisitions of goods (keep segregation in mind)
Determine the proper internal control for handling customer returns of defective merchandise:
The receiving department can…2
1 count the goods
2 list them on sales return notice to determine that all such returns
Are properly recorded
The receiving department both
1 counts the goods
2 list them on sales return notice to determine that all such returns
Are properly recorded:
This serves as a control because The normal procedures of the receiving function include…
establishing the original accountability and record keeping for items received
Approved requisitions will help…
Maintain control over raw materials released to be used in the
Production cycle
In addition to providing assurance as to proper execution and recording, an objective for the production cycle (as well as other cycles) is…
Safeguarding assets (like work in process and finished goods)
Prompt notification of payroll supervisor concerning terminations will lead to…
Timely removal of terminated employees from the payroll
Calculation of total hours by the payroll supervisor is…
Unlikely to prevent employee payroll fraud
Proper segregation of duties between personnel and payroll disbursement…
2) what is this an example of?
Eliminates many frauds in which phantom employees are being paid
2) procedure for determining effectiveness of entity’s controls Relating to existence and occurrence assertion for payroll transactions
Accounting for the prenumbered payroll checks addresses…
Completeness more directly than existence and occurrence
The payroll department should not perform…
Why?
The custody function of paychecks, because they perform the
Record keeping function
If payment of wages were to be in cash, each employee receiving payment should…
Be required to sign a receipt for the amount of pay received
If payment of wages were to be in cash, each employee receiving payment should be required to sign a receipt for the amount of pay received, thus there would be…
Control over total amount disbursed as well as amounts disbursed
To each individual employee
Wage payment will be made…
In cash and not by check, accordingly a receipt must be obtained
For each cash payment
Hiring personnel is…
An authorization function
Distribution of checks is a…
Custody function
The combination of hiring and distribution of payroll checks would create the possibility of the…
Addition of a fictitious employee to the payroll and subsequent
Misappropriation of paychecks
The treasury function and not the controllership function will…
Normally be responsible for distributing payroll checks
The personnel department has the primary objective of…
Planning, controlling and coordinating employees
The personnel department has the primary objective of planning controlling and coordinating employees will determine that…
Proposed salary increases (often recommended by supervisors
Of employees) are consistent with companies salary guidelines
And will approve changes in deductions
The treasurer and controller will in general…
Initiate the pay rate change process for only employees within
Their departments
And not generally approve changes for employees outside their
Departments
Who should have responsibility for custody of short term bearer bond investments and the submission of coupons for periodic collections of interest?
The treasurer authorizes such transactions
The cashier function is more directly involved with details such as…3
1 endorsing,
2 depositing and
3 maintaining records of cash receipts
What 3 statements should be included in the auditor’s letter on significant deficiencies to the committee under AU-C 265?
1 indicate audit’s purpose was to report on the financial statements
And not to express opinion on internal control
2 include definition of significant deficiency
3 restrict distribution of the report
According to AU-C 265, a compensating control is…
A control that lessens the severity of a deficiency
For a Nonpublic company, While an auditor may choose to communicate material weakness and significant deficiencies immediately…
The communication may occur at other times
Disagreements with management should…
Be communicated directly to those charged with corporate
Governance
According to AU-C 260, what 2 items should be communicated to audit committee?
1 significant audit adjustments
2 management’s consultation with other accountants about
Significant accounting matters
AU-C 610 states that internal auditors may assist the CPA in…3
1 obtaining understanding of internal control
2 performing tests of controls
3 performing substantive tests
Identify a CPA’s reporting responsibility, when reporting on internal control implemented for a service organization that processes payroll transactions:
A CPA is only expressing an opinion on…
Whether controls have been implemented
A disclaimer should be provided for operating effectiveness
Identify the proper information to be included in a service auditor’s report on whether a client’s controls have been implemented
Report should include description of scope and nature of client’s procedures
Identify the information provided in a service auditor’s report which includes description of controls implemented
Report includes description of scope and nature of CPA’s
procedures
