Audit Chapter 7

Organizational structure provides a basis for planning, directing, and controlling _________.

operations

Auditors are required by professional standards to communicate __________ and material weaknesses to the audit committee.

significant deficiencies

Detective Control

- Annual physical inventory - Monthly reconciliation of bank accounts - Management review of budget/actual information - Internal audits of Payroll

Preventive Control

-Segregation of Duties - Supervisory approival of time cards - dual signatures for checks

Detective Control

A requirement to prepare bank reconciliations

Corrective Control

Adjustment of perpetual inventory records to physical counts

The Foreign Corrupt Practices Act of 1977 prohibits __________ to foreign officials to obtain business and requires companies to maintain an effective system of internal control.

Bribes

A control that functions together with another control to achieve the same control objective

Complementary Control

Under COSO, the control environment, risk assessment, the accounting information and communication system, control activities and monitoring are referred to as the ____________ of internal control.

Components

A control established to remedy misstatements that are discovered

Corrective Control

No single employee in a company should have incompatible__________ allowing the employee to both perpetrate and conceal errors or fraud in the normal course of performing his or her job.

Duties

Type 2 reports address operating _______; Type 1 do not.

Effectiveness

A form of insurance in which an insurance company agrees to reimburse an employer for losses attributable to employee theft is referred to as ____________.

Fidelity Bonds

Corrective Control

Maintaining backups of Data

A deficiency in internal control such that there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis

Material Weakness in Internal Control

Preventative Control

Segregation of Duties

______should develop a statement of ethical values.

Senior Management

______ are the auditors of a service organization.

Service Auditors

The sequence of procedures applied by the client in processing a particular type of recurring transaction

Transaction Cycle

A ___ report assesses the controls and their suitability.

Type 1

A ___ report assesses the controls, their suitability, and effectiveness.

Type 2

A procedure in which an auditor follows a transaction from origination through the company's processes, including information systems, until it is reflected in the company's financial records

Walk-through

To enhance the control environment, management develops job __________.

descriptions

The audit committee should be composed of directors who are not _______of the organization.

employees