cpa audit review ch5 review 2

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Joens1313
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cpa audit review ch5 review 2
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2014-08-03 20:50:37
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cpa audit review ch5 review 2
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  1. According to AU-C 315, Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, not all controls are relevant to a financial statement audit. Which one of the following would most likely be considered in an audit?

    A.Marketing analysis of sales generated by advertising projects.

    B.Timely reporting and review of quality control results.

    C.Maintenance of statistical production analyses.

    D.Maintenance of control over unused checks.
    D.Maintenance of control over unused checks.

    Ordinarily, controls that are relevant to a financial statement audit pertain to the entity’s objective of preparing financial statements that are fairly presented in accordance with the applicable reporting framework, including managing the risks of material misstatements. Maintenance of control over unused checks is an example of a relevant control because the objective is to provide assurance about the existence assertion for cash.
  2. Some data processing controls relate to all computer processing activities (general controls) and some relate to specific tasks (application controls). General controls include

    A.Controls designed to assure the accuracy of the processing results.

    B.Controls for documenting and approving programs and changes to programs.

    C.Controls designed to ascertain that all data submitted to computer processing have been properly authorized.

    D.Controls that relate to the correction and resubmission of data that were initially incorrect.
    B.Controls for documenting and approving programs and changes to programs.

    General controls are policies and procedures that relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information systems. General controls commonly include controls over data center and network operations; systems software acquisition and maintenance; access security; and application system acquisition, development, and maintenance. Accordingly, they include (1) controls over operations to ensure efficient and effective operations of the computer activity; (2) the procedures for acquiring, developing, testing, documenting, and approving systems or programs and changes thereto; (3) controls over access to equipment and data files; and (4) other data and procedural controls affecting overall computer operations.
  3. The client’s computer exception reporting system helps an auditor to conduct a more efficient audit because it
    Highlights abnormal conditions.

    The exception reporting system highlights abnormal conditions and allows the auditor to focus on problem areas. Exception reports, also called error listings, suspense listings, and edit reports indicate the errors discovered by the controls. They permit the auditor to evaluate the effectiveness with which errors are investigated and corrected and the corrected transactions resubmitted.
  4. Name the 5 components of internal control?
    • (1) the control environment,
    • (2) risk assessment process,
    • (3) control activities,
    • (4) information systems, and
    • (5) monitoring of controls.





    Internal control has five components: (1) the control environment, (2) risk assessment process, (3) control activities, (4) information systems, and (5) monitoring of controls. The control environment sets the tone of an organization, influences control consciousness, and provides a foundation for the other components. The risk assessment process is the identification, analysis, and management of risks relevant to achievement of objectives. Control activities help ensure that management directives are executed. The information system, including the related business processes relevant to financial reporting and communication, consists of (1) physical and hardware components, (2) software, (3) people, (4) procedures, and (5) data. Monitoring assesses the performance of internal control over time (AU 315).
  5. In obtaining an understanding of controls that are relevant to audit planning, an auditor is required to obtain knowledge about the

    A.Controls related to each principal transaction class and account balance.

    B.Effectiveness of the controls that have been implemented.

    C.Consistency with which the controls are currently being applied.

    D.Design of the controls included in the internal control components.
    D.Design of the controls included in the internal control components.

    In all audits, the auditor should obtain an understanding of each of the five components of internal control sufficient to plan the audit. An understanding is obtained by performing risk assessment procedures to evaluate the design of controls relevant to the audit and to determine whether they have been implemented (AU-C 315).

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