acty 4160 SB 5.2

AS 2201 encourages the audit team to use the work of internal auditors but the audit team must evaluate their and and perform some tests of their work.

Blank 1: competence Blank 2: objectivity

Determining the nature, timing and extent of further audit procedures is based on risk and risk is used to determine the nature, timing, and extent of tests of controls

Blank 1: control Blank 2: inherent

When a single audit test produces both control testing and substantive testing evidence, it is called a(n) - test.

Blank 1: dual Blank 2: purpose

For all relevant assertions for each significant account and disclosure, the audit team begins by examining - controls that are pervasive to the internal control system and reliability of the financial statements as a whole.

Blank 1: entity Blank 2: level

The four methods of testing controls are , , document examination and .

Blank 1: inquiry Blank 2: observation Blank 3: reperformance

A method for documenting the audit team's understanding of internal controls that describes all environmental elements, the accounting system and all control activities is called a(n) .

Blank 1: narrative Blank 2: description

Flowcharts ______.

are easy to evaluate after they are completed are time-consuming to construct can be helpful in identifying missing controls

Tests of control ______ performed if the internal control system design is not considered effective.

are not

The final assessment of control risk should ______.

assist in determining the list of substantive procedures required be coordinated with the final audit plan

Generally a reassessment of control risk ______.

can only go upwards

When either the design or operation of the control under consideration does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion an internal control exists.

deficiency

A problem relating to either a necessary control that is missing or an existing control so poorly constructed that it fails to satisfy the control's objective is called a(n) ______.

design deficiency

Whether the controls over financial reporting, if operating as they should, would be expected to prevent or detect errors or fraud that could result in a material misstatement in the financial statements is determined by ______.

design effectiveness

An audit procedure that selects recorded payroll entries to vouch payroll to time cards and calculate the correct dollar amount of payroll is an example of a ______.

dual-purpose test

Controls that are pervasive to the internal control system and the reliability of the financial statements as a whole are called ______ - level controls.

entity

The audit team's first step in gaining an understand of the client's internal control system should focus on ______.

entity-level controls

Comparing all customers' credit limits to the sum of their outstanding credit balance plus a potential sales transaction as a means of checking for potential over-limit conditions is an example of ______ testing.

exception

Using an automated test procedure designed to test all items in a population as a means to identify a violation of control activities is an example of

exception

Procedures related to internal control in an integrated audit performed under AS 2201 are ______ than those in a GAAS audit for a nonpublic entity.

far more extensive

Flowcharts ______.

have become a popular documentation method for auditors help the audit team assess the key control points in the process involve considerable time and effort

When audit teams reach the third phase of an evaluation of internal control they ______.

have identified controls on which they intend to rely have set an acceptable rate of compliance for an activity to be considered effective

Internal control questionnaires ______.

help the auditing team obtain evidence about the control environment can be useful in detecting internal control weaknesses are somewhat unique for each organization

The preliminary assessment of control risk ______.

includes identifying activities explicitly designed to support reliable financial statement reporting may be made after understanding and documenting internal control

An account's significance is based on its ______ risk.

inherent

The least persuasive type of control test evidence is .

inquiry

When testing controls, the audit team often uses about the existence of the activity and then corroborate the evidence by observing the control activities are actually being performed.

inquiry

The audit team's decision that it would take more time to test the operating effectiveness of the control activities than it would take to perform the substantive tests necessary for a relevant assertion ______.

is equivalent to assessing control risk at 100%

After understanding and documenting internal control, the audit team should be able to ______.

make a preliminary assessment of control risk

The audit team must obtain written representations from management that explicitly acknowledges ______.

managements' responsibility for effective internal control over financial reporting all internal control deficiencies and frauds have been disclosed to the audit team

A deficiency that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis is a(n) ______.

material weakness

The magnitude of the potential misstatement that could occur and would not be detected on a timely basis is the primary difference between a(n) ______.

material weakness and significant deficiency

The acceptable rate of compliance for an internal control to be considered effective ______.

may be based on internal firm guidelines is a matter of professional judgment

The auditors' report on internal control over financial reporting ______.

may be presented in a separate report or a combined report with the opinion on the fairness of the financial statements

Narrative descriptions tend to be ______.

most efficient for audits of small businesses

Under Sarbanes-Oxley, an audit of the internal control system over financial reporting is required and ______.

must be integrated with the financial statement audit

Tests of controls ______

must be performed to obtain evidence that controls can be relied on

When gaining an understanding of internal controls, assertions should ______.

only be considered if they are relevant

If the audit team detects deficiencies or weaknesses, an unqualified opinion may ______

only be issued if the issues are corrected and then tested by the audit team

When a properly designed control is either ignored or inappropriately applied, a(n) ______ has occurred.

operating deficiency

An assertion that has a reasonable possibility of containing a material misstatement is considered to be a(n) assertion.

relevant

The key difference between document examination and is that the former provides evidence employees completed the activity and the later provides evidence it was done correctly.

reperformance

The most persuasive type of control test evidence is .

reperformance

A key factor in audit sampling is that, for a sample to be considered , all items in a population must have an opportunity to be selected.

representative

To be considered appropriate audit evidence, an audit sample must be ______.

representative of the population being sampled from a population that covers the entire period of reliance

When control activities do not lend themselves to automated testing, the audit team is likely to use audit to test the population.

sampling

Flowcharts ______.

should flow from left to right and top to bottom should include narrative explanations must be understandable to an audit supervisor

Internal control questionnaires ______.

tend to be inflexible make it less likely for the audit team to forget to cover an important point should be used in combination with other methods

Tests of operating effectiveness are similar to ______.

tests of control

In order to assess control risk below the maximum ______.

tests of controls must be performed

After their understanding of the entity's internal controls have been documented, the audit team may choose not to perform tests on the operating effectiveness of the controls because ______.

the cost of obtaining a low control risk assessment is high the internal control system is too ineffective to rely on it is less time consuming to conduct substantive tests

Controls that pertain to specific classes of entries, account balances and disclosures.are called ______ - level controls.

transaction

If the audit-team decides an entity-level control sufficiently reduces a specific risk ______.

transaction-level controls related to that risk may not be needed

A combination of personnel inquiry, operation observation and document examination while tracing a single transaction through the entire audit trail is a(n) ______.

walkthrough

Which of the following statements are correct?

Tests of controls should be applied to samples executed throughout the period under audit. For a sample to be representative, all items in the population have an opportunity to be selected.

Which of the following statements are correct regarding internal control communications to public entities?

The auditors' report must be in writing. All deficiencies must be communicated in writing to management.

Whether the controls over financial reporting, if operating as they should, would be expected to prevent or detect errors or fraud that could result in a material misstatement in the financial statements is determined by .

Blank 1: design Blank 2: effectiveness

Whether a control is working as designed and whether the person performing the control has the authority and qualifications to perform the control is referred to as

Blank 1: operating Blank 2: effectiveness

Whether a control is working as designed and whether the person performing the control has the authority and qualifications to perform the control is referred to as .

Blank 1: operating Blank 2: effectiveness

A material weakness is a deficiency that results in a(n) that a material misstatement would not be prevented or detected on a timely basis.

Blank 1: reasonable Blank 2: possibility

When planning the engagement to evaluate the effectiveness of the internal control system over financial reporting, the audit team must evaluate controls for all assertions and for all accounts or disclosures.

Blank 1: relevant Blank 2: significant

A deficiency in internal controls that is less severe than a material weakness yet important enough to merit attention from those charged with governance is a(n) .

Blank 1: significant Blank 2: deficiency

Gaining an understanding of internal controls should start by identifying accounts and disclosures and their

Blank 1: significant Blank 2: relevant Blank 3: assertions

The audit team's focuses on threats to the integrity of the external financial reporting process by taking a - approach to evaluating the effectiveness of the internal control system over financial reporting.

Blank 1: top Blank 2: down

The audit team identifies - controls that pertain to specific classes of entries, account balances and disclosures.

Blank 1: transaction Blank 2: level

True or false: An understanding of the design of controls or how they are intended to function provides the audit team complete evidence as to the operating effectiveness of controls.

False

Which of the following statements are correct?

If a control activity has high risk, more persuasive evidence is needed. It may be more efficient for the auditor to choose not to rely on controls.