Chapter 7 - ICFR
The following are requirements for management under Section 404 of the Sarbanes-Oxley Act of 2002:
1. Accept responsibility for the effectiveness of the entity's ICFR. 2. Support the evaluation of the entity's ICFR with sufficient evidence, including documentation. 3. Present a written assessment regarding the effectiveness of the entity's ICFR as of the end of the most recent fiscal year.
The following steps or procedures are likely to be performed as part of management's assessment of the effectiveness of internal controls:
1. Determining the locations or business units to be evaluated. 2. Evaluating the design effectiveness and operating effectiveness of selected controls. 3. Communication of its findings to the external auditors.
Place the following steps in the top-down, risk-based approach to the audit of ICFR in their proper order:
1. Identify entity level controls 2. Identify significant accounts and disclosures and their relevant assertions 3. Understand likely sources of misstatement 4. Select controls to test
The following statements are true regarding the use of the test data approach in the evaluation of an accounting system:
1. Only one transaction generally needs to be tested. 2. The test data should consist of only those valid and invalid conditions of interest to the auditor. 3. The test data should be processed on the entity's operating system under the auditor's control.
Generalized audit software (GAS) would likely be used in the audit of accounts receivable for all of the following
1. Selection and printing of sample accounts to be confirmed 2. Performing analytical procedures using entity's trial balance data 3. Recomputing an estimate of the allowance for doubtful accounts based on an accounts receivable aging analysis
All of the following factors should be considered by the auditor when deciding on the extent of controls testing:
1. The nature of the control to be tested. 2. The frequency with which the control is applied. 3. The importance of the control.
Which of the following statements best describes how the requirements under Sarbanes-Oxley changed the auditor's responsibility for issuing an opinion in connection with the audits of most public companies?
CPA firms are now required to issue a second opinion related to their evaluation of the effectiveness of internal controls in addition to an opinion on the overall fairness of the financial statements.
An auditor may need to obtain a service auditor's report when an entity receives accounting services such as payroll from a service organization. Which of the following statements is true regarding this service audit report?
It should include an opinion
The requirements of Section 404 of the Sarbanes-Oxley Act of 2002 apply to
Most publicly-held companies.
With regard to entities that have locations or business units that are judged to have financial reporting risks, the auditor
Must first determine whether those risks are adequately addressed by entity-level controls.
Which of the following statements is false concerning the audit requirements of the Sarbanes-Oxley Act of 2002 and AS5 related to internal controls?
The auditor should provide recommendations to the audit committee for improving internal control as part of the auditor's assessment.
Which of the following statements concerning control deficiencies is true?
The two dimensions of control deficiencies are likelihood of occurrence and magnitude.
"Remediation" refers to
Corrective actions taken by management to eliminate a material weakness.
Which of the following types of audit reports would not be appropriate for an auditor to issue on the effectiveness of an entity's internal controls?
Qualified [a significant deficiency exists
The role of the registered independent auditing firm relative to its clients' internal controls under the Sarbanes-Oxley Act of 2002 is to
Report to both the PCAOB and SEC those entities with unsatisfactory internal controls
