Responses to Assessed Risks Flashcards
What would be considered a step in an auditor’s decision to rely on internal controls?
Identify specific controls that are likely to prevent, or detect and correct, material misstatements and perform tests of controls.
In short - the auditor should perform tests of controls to rely on internal controls.
What is an example of a computer-assisted auditing technique that allows fictitious and real transactions to be processed together without the knowledge of client operating personnel?
Integrated Test Facility (ITF), also known as the “minicompany” technique is a development of the test data method that permits dummy transactions to be processed at the same time as live transactions
True or False.
Parallel simulation reprocess real and fictitious transactions.
FALSE.
Parallel simulation reprocesses only real, not fictitious, transactions.
What are some ways that an auditor can use to identify whether tests of controls are operating effectively?
Inquiries of entity personnel (e.g., a questionnaire completed by an employee in the receiving department);
inspection of documents, reports, and electronic files indicating performance of the controls
What is the objective of tests of details of transactions performed as tests of controls?
To evaluate whether internal controls operated effectively.
i.e. the auditor may use tests of details of transactions concurrently as tests of controls (i.e., as dual-purpose tests).
True or False.
An auditor’s objectives with respect to the assessment of the risks of material misstatement are the same as in a manual system
True.
The auditor is required to perform risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control.
What does an auditor’s design of tests of details ensure?
That sufficient audit evidence supports the planned level of assurance at the relevant assertion level.
What is the auditor’s alternative strategy if it is not possible to obtain sufficient appropriate audit evidence by performing only substantive procedures?
Perform tests of controls.
What test of controls is necessary if the the auditor intends to rely on the operating effectiveness of relevant controls?
INQUIRY.
i.e. inquiry combined with inspection, reperformance, or recalculation may be preferable to inquiry and observation.
Why would an auditor use only substantive procedures to evaluate specific relevant assertions and risks?
BECAUSE testing the operating effectiveness of the relevant controls would not be efficient.
What would be an effect for an auditor if they concluded that an entity’s internal controls are well designed and operating effectively?
NOT increase the extent of substantive procedures
When may an auditor decide to perform only substantive procedures for certain assertions?
If the auditor believes that controls are NOT relevant to the assertion.
What course of action would an auditor take after determining that performing substantive procedures on inventory will take less time than performing tests of controls?
Perform only substantive procedures on inventory
Why? - Because in such cases, the auditor does not intend to rely on controls.
What is the next step an auditor should take in response to discovering a deviation from the prescribed control?
Make inquiries to understand the potential consequence of the deviation
i.e. they should investigate it further to understand the potential consequences of the deviation
What should be the appropriate audit response when they discover it is not possible to obtain sufficient appropriate audit evidence solely by performing substantive procedures?
Perform tests of controls
