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Audit Chapter 9
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- 1Define internal controlThe process designed and effected to provide reasonable assurance about achievement of objectives.
Auditor is not responsible for this - 2In the context of internal control, What is the external auditors responsibility? Management?EA: evaluate existing controls, assess risk of material misstatement
Mgmt: control environment, acctng system, establishing and maintaining system of internal control probedures - 3What are the 6 General Categories of Misstatements? //Control Objectives opposite1. Invalid
2. Completeness
3.Unauthorized
4.Amounts Inaccurate
5. Classification
6. Period - 4Primary reason for conducting evaluation of internal control?determining the nature, timing, and extent of balance audit program
- 5How do poor controls differ with good controls wrt audit program?vs good controls, poor controls will:
Nature: more reliable evidence needed. More costly.
Timing: @Y/E, more testing needed. delays report, or more costly.
Extent: volume, more evidence needed. more costly. - 6Recall: what is control risk?Control risk is the risk that internal control systems will fail to prevent/detect material misstatement
- 7Name the three phases of control evaluation1. Understanding control
2. Assessing control risk
3. Testing controls - 8Describe Phase 1 of the control evaluationDone early on, overall get acquainted with:
-control environment,
-flow of transactions,
-effectiveness of key control procedures - 9What happens if not all control objectives are met within a specific account balance?More substantive work needs to be done there
- 10Describe the audit cost tradeoff-Major goal of audit is to be efficient.
-Tradeoff between cost of audit and assurance from testing the controls
-therefore need to develop most efficient mix of control and substantive procedures - 11What are general controls? Application controls?-Activities which have an overall impact on accounting processes
-preventative in nature
-specific procedures used to meet relevant control objectives - 12List 7 general controls-Capable Personnel
-Performance Reviews
-Segregation of Responsibilities
-Supervision
-Controlled Access
-Periodic comparison and reconciliation
-IT controls - 13Which responsibilities should be segregated?-authorization
-recording
-custody
-reconciliation - 14Describe phase 2 of the control evaluationAssessing the Control Risk
-auditor should make preliminary assessment of control risk
(ie identify specific control objectives, identifying points of misstatement, control procedures etc) - 15What is an Internal Control Questionnaire? (ICQ)-most efficient means of gathering evidence about internal control,
-conducting formal interview w/ knowledgeable managers
-designed so answers of no typically indicate control weakness - 16Describe the three possible phase 2 conclusions1. Control Risk assessed low: efficient and cost effective to test controls =combined approach
2. CR assessed low: inefficient to test controls: substantive procedures only is cheaper.
3. Control risk assessed high: only substantive procedures - 17Describe Phase 3 of the control evaluation-determine required degree of compliance
-determine how well control actually functioned during audit period:tests of control
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- Fichas sobre Audit Chapter 9, creado por A H el 27/11/2017.
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