Exam 8: Planning and Testing Operating Effectiveness of Internal Control Over Financial Reporting

Auditor A accepts a client in an industry where change is constant and rapid. Such a client presents which type of risk:

Substantive testing can be reduced as a result of ITGC testing performed at year-end.

AS #4 stipulates ways in which auditors can use electronic tools in their audit.

Which of the following information would be stored in the permanent files?

An operating deficiency occurs when a control fails to prevent or detect a material misstatement.

A significant deficiency is more serious than a material weakness.

In selecting controls to test, the auditor chooses those designed to prevent the greatest risk.

Sampling risk is the risk that your sample is not representative of the population.

An auditor wishing to reperform a control review over a voucher invoice would:

If a company owns many business locations (for example, many store locations), and in the aggregate they could cause material misstatements to the financial statements, the auditor would need to obtain sufficient audit evidence for all the locations to conclude on ICFR effectiveness. Assume the stores do not share a standard accounting system, and backroom operations and entity-level controls are not uniform across locations. Is it possible that this situation could make the needed audit procedures cost prohibitive, so that the company could not get an audit? Discuss. How might the company need to modify its procedures?

Assume that an auditor conducts an integrated audit in year one and issues a clean opinion on management's assessment of internal control, internal control effectiveness, and fairness of the financial statements. There is no change in the accounting information system. During the first quarter of year two, the auditor identifies a control deficiency that has not yet caused a material misstatement in the financial records or statements, but could cause a material misstatement. What does this mean regarding the appropriateness of the auditor's reports on ICFR in the prior year?

The auditor must index the files to conform to the balance sheet.

The auditor discovers that the likely rate of deviation in a population is increasing. This affects:

Preventative controls are preferred over detective controls.

To rely on the ICFR in the financial statement audit, the auditor must:

The use of computer-assisted audit techniques replaces traditional auditing judgment.

Recalculation is a form of reperformance.

Discussions with client personnel as to the effectiveness of controls are not recommended.

Manual control testing:

Manual controls require more testing than automated controls.