Exam 12: Assessing Control Risk and Reporting on Internal Controls

In order for the auditor to determine whether a significant internal control deficiency is a material weakness, the deficiency should be evaluation along one of the following two dimensions: likelihood or significance.

When documenting their understanding of a client's internal controls, auditors are required to use narratives.

An example of substantive testing and also a test of controls is using audit software to identify purchases where the vendor's invoice, the receiving report, and the purchase order did not match prior to payment of the vendor's invoice.

The auditor will issue an unqualified opinion on internal control over financial reporting when

Name three types of documents which auditors commonly use to obtain and to document their understanding in the audit working paper of the design of internal controls.

The objective of the test data approach is to determine whether the client's computer programs can correctly process valid and invalid transactions.

The assessment of control risk is the measure of the auditor's expectation that internal controls will prevent material misstatements from occurring or detect and correct them if they have occurred.

Which of the following is a correct statement?

Management's documentation is not a major source of information for auditors in gaining an understanding of the design of internal controls.

The two disadvantages of using questionnaires are their inability to provide an overview of the system and their inapplicability for some audits, especially smaller ones.

As Section 404 of the Sarbanes-Oxley Act requires management to assess and to document the design effectiveness of internal controls over financial reporting, management may have already prepared narratives and flowcharts which the auditor can the use in documenting their understanding of the design of such internal controls.

A(n) ________ control is a control elsewhere in the system that offsets the absence of a key control.

If the likelihood that a material misstatement would be prevented, detected, or corrected by the controls in place, then the control risk is low in the revenue transaction cycle.

When assessing whether the financial statements are auditable, the auditor must consider

Parallel simulation is used primarily to test internal controls over the client's IT systems, whereas the test data approach is used primarily for substantive testing.

Auditors often use Generalized Audit Software during their testing of a client's internal controls. For the following uses of the software provide a description and an example. Verify extensions and footings Print confirmation requests Compare data on separate files

An auditor traces the cost of sales entry for a sample of product sales to the inventory unit costs in effect at the date of each transaction. Which of the following procedures has the auditor performed?

Which of the following represents a correct statement regarding internal control testing?

A proper narrative of an accounting system and the related controls should include which four characteristics?

Which deficiency exists if a necessary control is missing or not properly implemented?