Auditing- Chapter 6

Compliance & Operations

Controls that may be relevant to the audit when they have an impact on data the auditor uses to apply audit procedures include ______ controls.

- nature and extent of interactions with auditors - experience of members - information availability

Factors that can impact the effectiveness of the board of directors or audit committee include ______.

- should be done to determine operating effectiveness - is intended to assess quality of performance over time - may identify the need for control redesign

Monitoring of internal controls ______.

- Information and communication - monitoring activities - control environment - entity's risk assessment

The components of internal controls as defined by the COSO Framework are ______.

Control Environment. Entity's Risk Assessment Process. Control Activities. Information and Communication. Monitoring Activities.

The components of internal controls as defined by the COSO Framework are ______.

effectiveness

The integrity and ethical values of management personnel heavily influence the ______ of an entity's internal controls.

COSO

The purpose of the ______ Framework is to help management better control the organization and to provide boards of directors an added ability to oversee internal control.

- Objectives - components - structure

A direct relationship exists between _____ which reflect what an entity is trying to achieve, ____ which represent what the entity needs to do to achieve them, and the _____ of the entity.

- describe transactions in sufficient detail to permit proper classification - identify and record all valid transactions - determine the proper time period in which transactions occurred

An effective accounting system establishes methods and records that will ______.

- Operations - Financial Performance Goals

An effective system of internal controls allows management to focus on _____ while maintaining compliance with relevant laws and minimizing surprises.

Internal Control

An important role in how management meets its stewardship or agency responsibilities is played by ______ _____

risk assessment

As it relates to the external financial reporting objective, the entity's _____ ____ process should consider internal and external events and circumstances that may arise and adversely affect the entity's ability to initiate, authorize, record, process and report financial data consistent with management's financial statement assertions.

Auditors

How management identifies risks relevant to the preparation of financial statements, estimates their significance, assesses the likelihood of their occurrence and decides on how to manage them is most directly relevant to the ______.

set the level of control risk at high use substantive procedures to reduce the risk of material misstatement to an acceptable level

If the auditor determines that internal controls are not properly designed or not implemented the auditor will ______.

External or Independent

Large public companies are required to engage a(n) _______ auditor to express an opinion as to the effectiveness of their systems of internal control over financial reporting.

Information processing controls

Made up of two broad categories referred to as general and application controls

Performance reviews

Managers should periodically check the quality of subordinates' work

- Audit Committee - Board of Directors

People that significantly influence the control consciousness of the entity and must take their fiduciary responsibilities seriously and actively oversee the entity's accounting and reporting policies and procedures include the ______.

Physical Controls

Periodic counting and comparison with amounts shown on control records Periodic counting and comparison with amounts shown on control records

Segregation of duties

Separating the custody of assets, authorization of transactions and recording of transactions Separating the custody of assets, authorization of transactions and recording of transactions

- Integrity - Ethical

The approach to taking and monitoring business risks and attitudes and actions toward financial reporting are characteristics that may signal important information to the auditor about management's ____ and ____ values.

- reliability - transparency - timeliness

The controls that are of most direct relevance to a financial statement audit are those that contribute to financial statement ______.

Information Technology

The extent of an entity's use of ______ can affect internal controls because this function affects the way transactions are initiated, authorized, recorded, processed and reported.

True

True or false: An entity's mix of manual and automated controls varies with the nature and complexity of the entity's use of IT.

Management

Who has the responsibility to design and maintain a system of internal control that provides reasonable assurance that assets and records are properly safeguarded, and that the entity's information system generates information that is reliable for decision making?