Exam 8: Internal Controls and Control Risk

Jenny is the information technology support manager at CMH. Jenny is considered to be a super-user at CMH since she can circumvent normal controls. In order to address the risk of super-users, management should

An important type of protective measure for safeguarding assets and records is

Why is it important to separate systems development (or acquisition) and program maintenance activities from accounting?

An act of two or more employees to work together to misstate records is called

A system of internal control consists of policies and procedures designed to provide management with

Which of the following is an example of a general authorization?

HomeTown Tanning Company is the largest leather tanning operation in Canada. Hides from various animals are stretched and treated, then cut into shapes for shipment to wholesalers. Computer-assisted operations are important in maintaining temperature, humidity, and proper mix proportions in chemical solutions used for the tanning process. Computer assistance has helped improve the quality of the tanning process, as well as provide a safer environment for employees. Computer operations and backup are supported by the warehouse manager, Joe. Individual hides are tagged with a bar code and tracked for quality control purposes. The HomeTown Tanning Company uses a centralized microcomputer-based system for its manufacturing and accounting operations. The two owners of the company are active in the business and approve all new hardware and software acquisitions. The controller is responsible for network upgrades as well as for maintaining passwords and user identification codes on the network. Accounting transactions are entered by accounting staff, although the controller has the ability to review and correct transactions. Required: List the six categories of functions that need to be separated from each other. Does HomeTown Tanning have these functions separated? For any functions that are not separated, indicate the potential impact upon controls and upon the audit.

You have just finished documenting your understanding of cycle controls at an audit engagement. Required: A) Explain how you will identify the controls that will be tested. B) What process will you follow for weakness in internal controls?

When planning the audit, the auditor's decision on the appropriate assessed level of control risk to use is

A major control available in a small company, which might not be feasible in a large company, is

The procedures to test effectiveness of control policies and procedures in support of a reduced assessed control risk are called

The chart of accounts is an important control because it provides the framework for determining the information presented to management and other financial statement users. What type of error is the chart of accounts helpful in preventing?

When a compensating control exists, a weakness in the system

An example of general computer control systems that provide reasonable assurance of authorization of application systems is

Carrie is the manager of the Bay Street Pharmacy. Carrie is considering implementing a security tag system to reduce the losses related to stolen goods at their store. The system Carrie is looking at currently costs $60 000 and is expected to be effective for 5 years. In order to justify the implementation of the security tag system, average theft per year should be at least

The operational responsibility and the recording of transactions are normally kept separate

After considering a client's internal controls, an auditor has concluded that it is well designed and is functioning as intended. Under these circumstances, the auditor would most likely

The board of directors is essential for effective corporate governance because it has ultimate responsibility to

A) The first step in the auditor's study and evaluation of internal control is obtain understanding of internal control for audit planning purposes. List the remaining steps. B) Once the auditor has an understanding of internal control, what two assessments must be made prior to testing controls? C) Describe five common procedures an auditor can use to obtain an understanding of internal control design.

Narratives, flowcharts, and internal control questionnaires are three commonly used methods of