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Exam 6: Gaining an Understanding of the Clients System of Internal Controls

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Question 1

Multiple Choice

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The most common ways of auditors documenting their understanding of internal controls include:

A) flowcharts
B) narratives
C) preformatted questionnaires
D) all of the above

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D

Question 2

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All of the following are components of internal control, except for:

A) monitoring of controls
B) the control environment
C) audit committees
D) the information system

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Question 3

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Internal control weaknesses decrease the risk of material misstatements being undetected by management's processes and controls.

The concept that no one employee should be in a position both to perpetrate and hide errors or fraud in the normal course of their duties is known as segregation of incompatible duties.

Checklists and preformatted questionnaires are particularly helpful in industries that the auditor may not personally be familiar with auditing.

Internal control is intended to provide reasonable assurance about the achievement of an entity's objectives.

Audit risk is the risk that an entity's internal control system will not prevent or detect material misstatements.

What are control activities and explain the major categories of them?

Which of the following statements about internal control is in?

Explain the seven generally accepted objectives of internal control activities and identify the relevant assertions.

ASA260 Communication of Audit Matters with Those Charged with Governance requires auditors to communicate audit matters of governance interest arising from the audit of the financial report with those charged with governance of an entity. What are some examples of these matters and why is it important for auditors to communicate them?

In larger entities, there are often limitations surrounding the entity's ability to put effective internal controls in place.

Checklists and preformatted questionnaires are particularly helpful:

The inherent limitations of internal control include the possibility of collusion by two or more individuals to circumvent a control.

What have been the major impacts on companies and auditors of section 404 of the Sarbanes-Oxley Act (2002)? Has this section improved the quality of companies' internal controls?

Explain the key elements of the control environment.

One of the elements of an entity's control environment is management's philosophy and operating style.

The internal control objective of 'valued' refers to controls in place to ensure that transactions are recorded in the accounting period.

Narratives involve the auditor describing in words each step of the flow of transactions from start to finish.

Which of the following is an element of the control environment?