cpa audit review ch5 review 3

The flashcards below were created by user Joens1313 on FreezingBlue Flashcards.

  1. An entity should consider the cost of a control in relationship to the risk. Which of the following controls best reflects this philosophy for a large dollar investment in heavy machine tools?

    A.Imprinting a controlled identification number on each tool.

    B.Having all dispositions approved by the vice president of sales.

    C.Placing security guards at every entrance 24 hours a day.

    D.Conducting a weekly physical inventory.
    A.Imprinting a controlled identification number on each tool.

    A controlled identification number on each tool and periodic checking allow for an effective control at reasonable cost.
  2. It is important for the auditor to consider the competence of the audit client’s employees, because their competence bears directly and importantly upon the
    Achievement of the objectives of internal control.

    The control environment is the foundation of internal control. A commitment to competence is one of the factors in the control environment.
  3. The use of message encryption software

    A.Requires manual distribution of keys.

    B.Guarantees the secrecy of data.

    C.Increases system processing costs.

    D.Reduces the need for periodic password changes.
    C.Increases system processing costs.

    Encryption software uses a fixed algorithm to manipulate plain text and an encryption key (a set of random data bits used as a starting point for the application of the algorithm) to introduce variation. The machine instructions necessary to encrypt and decrypt data require additional processing. As a result, processing costs increase.
  4. As part of understanding internal control relevant to the audit of a non issuer, an auditor does not need to

    A.Identify the risks of material misstatement.

    B.Determine whether controls have been implemented.

    C.Obtain knowledge about the operating effectiveness of internal control.

    D.Consider factors that affect the risks of material misstatement.
    C.Obtain knowledge about the operating effectiveness of internal control.

    Understanding internal controls relevant to the audit involves evaluating the design of the controls and determining whether they have been implemented. The auditor of a nonissuer need not obtain an understanding about operating effectiveness as part of understanding internal control. However, (1) the auditor’s assessment of the risks of material misstatement (RMMs) may include an expectation of the operating effectiveness of controls, or (2) substantive procedures may not provide sufficient appropriate evidence at the relevant assertion level about operating effectiveness. In these circumstances, the auditor should test controls (AU-C 330).
  5. Control activities constitute one of the five components of internal control described in the COSO model. Control activities do not encompass

    A.Performance reviews.

    B.Information processing.

    C.Physical controls.

    D.An internal auditing function.
    D.An internal auditing function.

    The COSO model describes control activities as policies and procedures that help ensure that management directives are carried out. They are intended to ensure that necessary actions are taken to address risks to achieve the entity’s objectives. Control activities have various objectives and are applied at various organizational and functional levels. However, an internal auditing function is part of the monitoring component.
Card Set:
cpa audit review ch5 review 3
2014-08-04 00:55:48
cpa audit review ch5

cpa audit review ch5 review 3
Show Answers: