Quiz Mods 1-3 Flashcards
Entity level controls include:
Controls related to…
Control environment
Regarding the company’s annual stockholder meeting is…
Not an entity level control
Entity level controls include:
Controls over…
Management override
Entity level controls include:
The company’s…
Risk assessment process
Entity level controls include:
Centralized processing and…
Controls, including shared service environments
Entity level controls include:
Controls to monitor…
Results of operations
Entity level controls include:
Controls to monitor other controls including activities to monitor…3
1 internal audit function
2 audit committee
3 self assessment programs
Entity level controls include:
Controls over the…
Period end financial reporting process
Entity level controls include:
Policies that address…2
Significant business control and risk management practices
Additions may be made to audit documentation…
After report release date
Deletions and discarding of audit documentation are…
Not allowed after report release date
Any additions made to audit documentation must include…3
1 date info was added
2 name of person who prepared the additional documentation
3 the reason for the addition
The purchase and cash disbursements cycle requires that…3
1 procurements are properly authorized
2 goods and services actually received
3 invoice details regarding vendor, price, quantities, terms and
Arithmetic are correct
The purchase and cash disbursements cycle requires that
1 procurements are properly authorized
2 goods and services actually received
3 invoice details regarding vendor, price, quantities, terms and
Arithmetic are correct
This is best accomplished by having the accounts payable department…
Establish the agreement of the vendor’s invoice with the receiving
Report and purchase order
Accounts receivable department establishing agreement with vendors invoice
Invoice details are correct
Accounts receivable department establishing agreement with receiving report
Goods and services actually received
Accounts receivable department establishing agreement with purchase order
Procurements are properly authorized
Rather than the accounts payable department, the person preparing and signing checks (usually treasurer) would…
Cancel supporting documentation
The purchasing department would verify that…
Requisitions are properly completed and authorized
As well as sending copies of purchase order to receiving
department
Disclosure of fraudulent activities to parties other than the client’s senior management and those charge with governance is…2
1 Not ordinarily part of auditor’s responsibility
2 normally not permitted due to confidentiality
Under what circumstances is the auditor required to disclose information to outside parties 4
1 comply with legal/regulatory requirements
2 subpoenaed
3 to respond to successor auditor
4 with grant requirements when client’s receive governmental
Assistance
The auditor should communicate to those charged with governance all fraud…
Involving senior management and fraud that causes material
Misstatement
The auditor should report to those charged with governance and management…
Any significant deficiencies due to risk of material misstatement
Due to fraud
Auditor should inform the appropriate level of management of…
Evidence that fraud has occurred, even if matter is inconsequential
AU 339 Audit Documentation entitled “Providing Access to or Copies of Audit Documentation to a Regulator” does not apply to…5
1 request from IRS
2 firm practice monitoring programs to comply with AICPA
3 state professional requirements (peer or quality reviews)
4 proceedings related to alleged ethics violations
5 subpoenas
The vouchers payable department should not account for…
Unused prenumbered purchase orders and receiving reports
Accounting for unused prenumbered purchase orders and receiving reports is the responsibility of…
Purchasing and receiving departments respectively
If vouchers payable employee had access to unused purchase orders and receiving reports this would…
Be inadequate segregation of duties
If vouchers payable employee had access to unused purchase orders and receiving reports they could…3
1 write a fake purchase order
2 confirm receipt of the nonexistent goods
3 authorize payment to themselves
Vouchers payable department should match…
Vendor’s invoice with the related receiving report, which ensures
Goods billed were received
Ex. The voucher is valid
Vouchers payable department should approve…
Vouchers for payment by having an authorized employee sign The vouchers (authorization)
Vouchers payable department should indicate…
The asset and expense accounts to be debited (ensuring proper
Classification)
The purpose of an engagement letter is to…
Help avoid misunderstanding with respect to the engagement
The engagement letter serves as…
The contract between client and accountant regarding terms
Of engagement
The engagement letter helps avoid…
Legal liability claims that the auditor did not perform work as
Promised
While an engagement letter is not required by GAAS, it is…
Strongly recommended that such a letter be obtained for all types
of engagements
While the successor auditor must obtain permission from the client to communicate with the predecessor auditor, this is not done in…
The engagement letter
Assurances from management regarding assertions in the financial statements are contained in…
The client representation letter
The engagement letter is not designed to…
Release auditor from liability for errors and irregularities not
Detected by the audit
5 interrelated components of internal control
1 control environment 2 risk assessment 3 information and communication 4 control activities 5 monitoring
Materiality is not…
An interrelated component of internal control
Control environment
Sets tone of the organization
Risk assessment
Entity’s identification and analysis of relevant risks to achievement
Of its objectives
Information and communication systems support the…
Identification, capture and exchange of info in form and timeframe
That enable people to carry out their responsibility
Control activities
Policies and procedures that help ensure that management
Directives are carried out
Monitoring
Process that assesses the quality of internal control performance
Over time
The quality control system of GAO auditor’s should address…
Human resource policies and procedures
External peer review of GAO auditors is required…
Once every 3 years
Auditor’s understanding of the entity and its environment consists of an understanding of the following aspects 5
1 industry, regulatory and other external factors
2 nature of the entity
3 objectives and strategies and the related business risks that may
Result in material misstatement of financial statements
4 measurement and review of entity’s financial performance
5 internal control, which includes selection and application of
Accounting policies
Entity’s accounting policies and procedures does…
Not fit into the category of industry, regulatory and other external factors
Relevant industry, regulatory and other external factors include industry conditions such as…3
1 competitive environment
2 supplier and customer relationship
3 technological developments
Regulatory environment encompasses…3
1 Relevant accounting pronouncements
2 political environment
3 environmental requirements affecting industry and entity
Factors that influence auditor’s reliability of data 5
1 origin of data 2 independence of data source 3 strength of controls in system used to develop data 4 audited status of data 5 number of sources used to develop data
The PCAOB has the authority to enforce Section 303 of SOX in…
Civil proceedings
Examples of discrepancies in accounting records that could be used to assess the risk of material misstatement due to fraud include:
Transactions that are not recorded in…
A complete or timely manner
Examples of discrepancies in accounting records that could be used to assess the risk of material misstatement due to fraud include:
Transactions that are not recorded in a complete or timely manner or are improperly recorded as to…4 choices
1 amount
2 accounting period
3 classification
4 or entity policy
Examples of discrepancies in accounting records that could be used to assess the risk of material misstatement due to fraud include:
Unsupported or…
Unauthorized balances or transactions
Examples of discrepancies in accounting records that could be used to assess the risk of material misstatement due to fraud include:
Last minute adjustments that…
Significantly affect financial results
Examples of discrepancies in accounting records that could be used to assess the risk of material misstatement due to fraud include:
Evidence of employees’ access to…
Systems and records inconsistent with that necessary to perform
Their authorized duties
Examples of discrepancies in accounting records that could be used to assess the risk of material misstatement due to fraud include:
Tips or…
Complaints to the auditor about alleged fraud
AU standards for fraud planning include…
Brainstorming among team members and importance of
maintaining proper state of mind
Examination of client records documenting use of EDP programs is an example of…
Examining records that could provide auditor info to determine if control activities are operating as designed
An auditor may chose to rely or not rely on the work of another auditor, in either case, the auditor should…
Inquire as to the reputation of the other auditor
A GAO structural threat is…
The threat that an audit organization’s placement within a
government entity, in combination with structure of government
Entity being audited
Will impact audit organization’s ability to perform work and report
Results objectively
What 7 circumstances has GAO identified that could lead to threats of independence?
1 self interest 2 self review 3 bias 4 familiarity 5 undue influence 6 management participation 7 structural threats
An auditor most likely perform in planning a financial statement audit would be…
Comparing the financial statements to anticipated results
Inquiring with client’s legal counsel, examining computer generated exception reports to verify effectiveness of internal controls and searching for unauthorized transactions are all…
Part of obtaining sufficient appropriate evidence through inspection,
Observation, inquiries and confirmations
Mailing monthly statements to all customers with outstanding balances is the internal control, that if implemented properly, could…
Assist the client in preventing or detection misappropriation of
A customer’s check
The customer provides an independent check on the customer account balance and is a…
Source of information which is external to organization
