6.4. Discuss what is meant by the term "inherent limitations" in the context of internal
control.
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, Management weighs the benefit of a control with the cost of the control
policy or procedure in determining internal controls. The cost cannot
outweigh the benefit. Additionally, mistakes may occur from
miscommunications, fatigue, or misjudgments. Breakdowns can occur from
collusion or management override.
Which of the following procedures would an auditor most likely rely on to verify
management's assertion of completeness?
a. reviewing standard bank confirmations for indications of cash manipulations
b. comparing a sample of shipping documents to related sales invoices
c. observing the entity's distribution of payroll checks
d. confirming a sample of recorded receivables by direct communication with the
debtors
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b. comparing a sample of shipping documents to related sales invoices
The current file of the auditor's working papers should generally include
a. a flowchart of the accounting system
b. organization charts
c. a copy of the financial statements
d. copies of bond and note indentures
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c. a copy of the financial statements
,5.5. What are the 4 considerations that determine the efficiency and effectiveness of
analytical procedures used for substantive purposes?
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nature of the assertion
availability and reliability of the data
precision of expectation
predictability of the relationship
evaluations of financial information made through analysis of plausible relationships
among both financial and non financial data
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analytical procedures
The tone of an organization, which reflects the overall attitude, awareness, and
actions of the board of directors, management, and owners influencing the control
consciousness of its people.
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Control Environment
2 categories of evidential matter
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, underlying accounting data-quality of the information/accounting systems
itself
other corroborating information-related to verification of F/S item
policies and procedures to provide reasonable assurance that information is
identified, captured, and exchanged on a timely basis so that personnel can meet
their responsibilities
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information and communication
Audit evidence that includes minutes of meetings; confirmations from third parties;
industry analysts' reports; comparable data about competitors (benchmarking);
controls manuals; information obtained by the auditor from such audit procedures as
inquiry, observation, and inspection; and other information developed by, or available
to, the auditor that permits the auditor to reach conclusions through valid reasoning.
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other information
After obtaining an understanding of an entity's internal control system, an auditor may
set control risk at high for some assertions because he or she
a. believes the internal controls are unlikely to be effective
b. determines that the pertinent internal control components are not well
documented
c. performs tests of controls to restrict detection risk to an acceptable level
d. identifies internal controls that are likely to prevent material misstatements
control.
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, Management weighs the benefit of a control with the cost of the control
policy or procedure in determining internal controls. The cost cannot
outweigh the benefit. Additionally, mistakes may occur from
miscommunications, fatigue, or misjudgments. Breakdowns can occur from
collusion or management override.
Which of the following procedures would an auditor most likely rely on to verify
management's assertion of completeness?
a. reviewing standard bank confirmations for indications of cash manipulations
b. comparing a sample of shipping documents to related sales invoices
c. observing the entity's distribution of payroll checks
d. confirming a sample of recorded receivables by direct communication with the
debtors
Give this one a try later!
b. comparing a sample of shipping documents to related sales invoices
The current file of the auditor's working papers should generally include
a. a flowchart of the accounting system
b. organization charts
c. a copy of the financial statements
d. copies of bond and note indentures
Give this one a try later!
c. a copy of the financial statements
,5.5. What are the 4 considerations that determine the efficiency and effectiveness of
analytical procedures used for substantive purposes?
Give this one a try later!
nature of the assertion
availability and reliability of the data
precision of expectation
predictability of the relationship
evaluations of financial information made through analysis of plausible relationships
among both financial and non financial data
Give this one a try later!
analytical procedures
The tone of an organization, which reflects the overall attitude, awareness, and
actions of the board of directors, management, and owners influencing the control
consciousness of its people.
Give this one a try later!
Control Environment
2 categories of evidential matter
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, underlying accounting data-quality of the information/accounting systems
itself
other corroborating information-related to verification of F/S item
policies and procedures to provide reasonable assurance that information is
identified, captured, and exchanged on a timely basis so that personnel can meet
their responsibilities
Give this one a try later!
information and communication
Audit evidence that includes minutes of meetings; confirmations from third parties;
industry analysts' reports; comparable data about competitors (benchmarking);
controls manuals; information obtained by the auditor from such audit procedures as
inquiry, observation, and inspection; and other information developed by, or available
to, the auditor that permits the auditor to reach conclusions through valid reasoning.
Give this one a try later!
other information
After obtaining an understanding of an entity's internal control system, an auditor may
set control risk at high for some assertions because he or she
a. believes the internal controls are unlikely to be effective
b. determines that the pertinent internal control components are not well
documented
c. performs tests of controls to restrict detection risk to an acceptable level
d. identifies internal controls that are likely to prevent material misstatements
