Topic 2 - Business Processes, Internal Control and Financial Report Preparation

Question 1

what is the responsibility of the auditor for auditing the financial report?

Answer 1

Carries out audit procedures that… enable him or her to provide this high level of assurance about the reliability of management representations in the financial and provides the basis for the auditor’s opinion whether the
financial statements are free from material misstatement statements.

Question 2

What is management responsible for?

Answer 2

• Establish an accounting system
• a system of internal control
• Select accounting principles

Question 3

what are the 6 Steps in the accounting cycle?

Answer 3

• transaction or event
• source doc
• prepare journal entries
• post to ledgers
• prepare trial balance
• prepare financial report

Question 4

What are the 4 processes in the Sale of goods to customers? what are the related docs?

Answer 4

• process customer order -> sales order
• grant credit -> credit approval form
• ship goods -> shipping order
• bill customer/record sales -> invoice & sales journal

Question 5

When would you see a remittance advice?

Answer 5

when processing and recording cash receipts

Question 6

What is the purpose of internal controls?

Answer 6

internal control provides checks and balances within the accounting system to safeguard against both deliberate and accidental error and ensures that transactions are processed completely and accurately.

Question 7

What are 7 control activities?

Answer 7

• Segregation of duties
• authorization
• physical control (restricting access)
• performance review
• adequate docs and records
• independent checks on performance
• info processing (controls with IT)

Question 8

what are general controls of info processing? (3)

Answer 8

1: Segregation of I T duties
2: Control over programs
3: Control over data

Question 9

what are application controls of info processing? (4)

Answer 9

• data preparation (source documents)
• data Entry
• transaction processing
• doc and report generation

Question 10

Causes of Business Risk. (9)

Answer 10

￭Changes in the operating environment.
￭New personnel.
￭New or revamped information system.
￭Rapid growth.
￭New technology.
￭Regulatory changes
￭New business models, products or activities.
￭Expanded international arrangements.
￭New accounting pronouncements.