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auditing and attestation > Understanding the Entity & Its Environment (Including Internal Control) > Flashcards

Understanding the Entity & Its Environment (Including Internal Control) Flashcards

1
Q

What are we looking for when we are gaining an understanding of the entity, its environment, and internal control?

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2
Q

What are some examples of entities, environments, and internal control?

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3
Q

What is materiality? Why must we determine and document it?

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4
Q

What is risk assessment? Why must we conduct and document it?

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5
Q

Risk of what?

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6
Q

Why must we have discussions among the audit team regarding these procedures?

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7
Q

Why must we discuss a susceptibility of a material misstatement of the entities financial statements due to fraud?

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8
Q

What is fraud?

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9
Q

What are characteristics of fraud?

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10
Q

What are we discussing when we document required discussions regarding risk of fraud?

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11
Q

What kinds of inquiries are we making when we make and document inquiries of management about fraud?

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12
Q

What are we looking for when we identify and assess risks that may result in material misstatements due to fraud?

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13
Q

What are we doing when we perform and document risk assessment procedures?

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14
Q

What are we taking a risk assessment of?

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15
Q

How do we identify, conduct, and document appropriate inquiries of management and others within the entity?

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16
Q

How do we perform appropriate analytical procedures to understand an entity and identify areas of risk?

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17
Q

How do we obtain information to support inquiries through observation and inspection (including reading corporate minutes, etc)?

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18
Q

How do we consider additional aspects of the entity and its environment, including: industry, regulatory and other external factors; strategies and business risk; financial performance?

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19
Q

How do we consider internal control in evaluating the entity we are auditing and its environment?

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20
Q

How do we perform procedures to assess the control environment, including consideration of the COSO framework and identifying entity-level controls?

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21
Q

What are entity-level controls?

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22
Q

What are business processes and information flows? Why do we need to obtain and document an understanding of them?

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23
Q

What is the effect of information technology on the effectiveness of an entity’s internal control?

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24
Q

How do we perform risk assessment procedures to evaluate the design and implementation of internal controls relevant to an audit of financial statements?

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25
Q

How do we identify key risks associated with general controls in a financial IT environment,?

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26
Q

What is change management?

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27
Q

What is backup/recovery?

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28
Q

What is network access (e.g. administrative rights)?

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29
Q

What are financial transaction cycles?

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30
Q

What is application access control (e.g. administrative access rights)?

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31
Q

What are controls over interfaces?

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32
Q

What are controls over integrations?

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33
Q

What are controls over e-commerce?

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34
Q

What are controls over significant algorithms?

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35
Q

What are controls over reports?

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36
Q

What are controls over validation?

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37
Q

What are controls over edit checks?

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38
Q

What are controls over error handling?

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39
Q

How do we assess whether the entity has designed controls to mitigate key risks associated with general controls or application functionality?

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40
Q

What are general controls?

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41
Q

What is application functionality?

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42
Q

How do we identify controls relevant to reliable financial reporting and the period-end reporting process?

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43
Q

What are limitations of internal control?

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44
Q

What are the effects of service organizations on internal control?

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45
Q

What is the risk of management override of internal controls?

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46
Q

How do we document an understanding of the entity and its environment? Including each component of the entity’s internal control in order to assess risks?

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47
Q

How do we assess and document the risk of material misstatements?

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48
Q

How do we identify and document financial statement assertions and formulate audit objectives? Including significant financial statement balances, classes of transactions, disclosures, and accounting estimates?

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49
Q

How do we relate the identifies risks to relevant assertions and consider whether the risks could result in a material misstatement to the financial statements?

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50
Q

How do we assess and document the risk of material misstatement that relates to both financial statement level and specific assertions?

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51
Q

What is the meaning of financial statement level?

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52
Q

What is the meaning of specific assertions?

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53
Q

How do we identify and document conditions and events that may indicate risks of material misstatement?

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54
Q

How do we identify and document significant risks that require special audit consideration?

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These risks include: significant recent economic, accounting, or other developments; related parties and related party transactions; improper revenue recognition; non-routine or complex transactions; significant accounting estimates; and illegal acts.

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