4 Steps in the Process of understanding controls correct answers (1) Obtain and document understanding of internal controls
(2) Assess control risk
(3) Design, perform, and evaluate tests of controls
(4) decide planned detection risk and substantive tests
Obtain and Document Understandi...
Ch 12 + 13 Acct 5200 || Questions and 100% Verified
Answers.
4 Steps in the Process of understanding controls correct answers (1) Obtain and document
understanding of internal controls
(2) Assess control risk
(3) Design, perform, and evaluate tests of controls
(4) decide planned detection risk and substantive tests
Obtain and Document Understanding of Internal Control (3 Techniques) correct answers (1)
Narrative
(2) Flow Chart
(3) Internal Control Questionnaire
Narrative (4 parts to include) correct answers (1) The origin of every document and record in the
system
(2) All processing that takes place
(3)The disposition of every document and record in the system
(4)An indication of the controls relevant to the assessment of control risk
Evaluating Internal Control Implementation correct answers In addition to understanding the
design of the internal controls, the auditor must also evaluate whether the designed controls are
implemented.
Determine Assessed Control Risk Supported by the Understanding Obtained correct answers The
auditor makes a preliminary assessment of control risk based on entity-level control risks as well
as IT general controls.
Auditors these methods to evaluate implementation (5) correct answers (1) Update and evaluate
auditor's previous experience with the entity.
(2) Make inquiries of client personnel.
(3) Examine documents and records.
(4) Observe entity activities and operations.
, (5) Perform walkthroughs of the accounting system.
Components of the Matrix include (3) correct answers (1) Identify audit objectives
(2) identify existing controls
(3) associate controls with related audit objectives
Control Deficiency correct answers The design or implementation of internal controls does not
permit company personnel to prevent or detect misstatement.
Auditing standards define three levels of the absence of internal controls (3) correct answers (1)
Control Deficiency
(2) Significant Deficiency
(3) Material Weakness
Significant Deficiency correct answers A deficiency that is less severe than a material weakness,
but important enough to merit attention.
Material Weakness correct answers Exists if a significant deficiency, or combination of
significant deficiencies, result in a reasonable possibility that internal control will not prevent or
detect material financial statement misstatement.
Identify Deficiencies, Significant Deficiencies, and Material Weaknesses (6 Steps) correct
answers (1) Identify existing controls.
(2) Identify the absence of key controls.
(3) Consider the possibility of compensating controls.
(4) Decide whether there is a significant deficiency or material weakness.
(5) Determine potential misstatements that could result.
Purpose of Tests of Controls correct answers to test the effectiveness of controls in support of a
reduced control risk for the audit
Understanding Internal Controls on Outsourced Systems correct answers When clients use
service centers for processing transactions, the auditor may need to obtain an understanding of
the controls of the service center
Procedures for Tests of Controls (4 types of procedures) correct answers (1) Make inquiries of
appropriate client personnel.
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