Section 3: Internal Control Flashcards

1
Q

Objectives of Internal Control:

ACE

A

Accurate & reliable financial reporting

Compliance with laws & regulation

Effectiveness & efficiency of operations

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2
Q

5 Componenets of Internal Control:

CRIME

A

Control Environment

Risk Assessment

Control Activities

Information & Communication

Monitoring

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3
Q

Control Environment:

CHOPPER

A

Commitment to competence

Human resource policies & practice

Organizational structure

Participation of those charged w/governance

Philosophy of mgmt & mgmt operating style

Ethical values & integrity

Responsibility assignment

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4
Q

Control Activities:

PIPS

A

Performance reviews

Information processing

Physical controls

Segregation of duties

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5
Q

ARCC-S

A

segregation of duties:

Authorization of transactions

Recording (posting) of transactions

Custody of assets

Comparisons

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6
Q

Risk Assessment Procedures:

AIIO

A

procedures designed to provide the auditor with an adequate understanding to enable the auditor to effectively assess the risk of material misstatements on the financial statements

Analytical procedures

Inquiries

Inspection

Observation

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7
Q

Goals of Risk Assessment Procedures

A
  • identify types of potential misstatements (error or fraud)
  • consider factors that affect the risk of material misstatement
  • design tests of controls and substantive procedures
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8
Q

How to document understanding of internal controls:

FIND

A

Flowchart

Internal control questionnaire

Narrative or memorandum

Decision table/tree

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9
Q

4 procedures for testing controls:

testing cycles for ARCC’s by doing RIIO

A

Reperformance

Inspection

Inquiry

Observation (most effective)

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10
Q

Inherent Limitations of Internal Control:

COCO

A

Collusion

Override by management

Competence/human error

Obsolescence

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11
Q

Management’s Assertions:

U-PERCV

A

Understandability & Classification

Presentation & Disclosure

Existence or Occurence (vouching)

Rights & Obligations

Completeness (tracing) & Cutoff

Valuation, Allocation & Accuracy

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12
Q

Tracing

A
  • going from the source to the books
  • testing for completeness
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13
Q

Vouching

A
  • going from the books to the source
  • testing for existence/occurance
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14
Q

ICQ Key Questions:

PRAISE

A

Physical controls

Recording

Authorization

Independent checks

Segregation of duties

Evaluate performance

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15
Q

Material Weakness

A

a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement on the entity’s financial statements will not be prevented, or detected and corrected on a timely basis

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16
Q

Significant Deficiency

A

a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance