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17 Cards in this Set
- Front
- Back
What does Internal Control provide? |
Reasonable Assurance on:
Material misstatements will be prevented Reliability/Integrity of F/S will be preserved Assets are protected against misuse |
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Internal Control requirements under SOX
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o CEO/CFO must disclose I/C deficiencies
o Management must provide assessment of I/C o Management must certify F/S |
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Objectives of Internal Control
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Reliability of Financial Reporting
Operational Efficiency/Effectiveness Compliance with Law and Regulatory |
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Components of Internal Control
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(CRIME)
Control Activities Risk Assessment Info & Communication Systems Monitoring Environment |
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Components of risk assessment that affect risk of operating environment
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1. New personnel
2. New info system 3. Rapid growth 4. New technology 5. New business model/products/activities 6. Corporate restructuring 7. Expand foreign operations 8. New accounting pronouncements |
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Components of Control Activities
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Performance Reviews
Information Processing Physical Controls Segregation of Duties |
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Components of Information & Communication
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Auditor needs to understand
o Major transaction classes o Transaction initiation o Support records/documents o Transaction processing o F/S internal reporting process o F/S external communication process |
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Components of Control Environment
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1. Integrity and ethical values
2. Commitment to competence 3. Board of directors/audit committee 4. Management's philosophy 5. Organizational structure 6. Assignment of authority & responsibility 7. Human resources policies |
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Internal Control testing should be strong as IRON
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o Inquiry – Interview company personnel
o Re-performance – Can it be replicated? o Observation – Watch the control be applied o iNspection – Dig into the details/documents |
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Tracing vs. Vouching
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Tracing = Completeness
Starts with source document and traces forward to the journal entry Vouching = Existence Starts with entry and searches for a voucher or source document to support the entry |
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Segregation of duties
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(ARC)
Authorization of asset disbursement Recording of Assets Custody of assets |
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Control Deficiencies - Material Weakness
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o Reasonable possibility that controls will not
prevent a material misstatement o Written report to management required o Report declaring that no material weaknesses were found is allowed o Previous weaknesses reported that still exist should be reported again o Should be reported no later than 60 days after audit report release date o If one or more material weaknesses is uncorrected at year-end, an Adverse Opinion on internal control must be given |
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Control Deficiencies - Significant Deficiency
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o Adversely affects company’s ability to report F/S
in accordance with GAAP o “More than a remote likelihood” of material misstatement by “more than an inconsequential amount” o Written report to management required o Report declaring that no significant deficiencies is not allowed o Previous deficiencies reported that still exist should be reported again o Should be reported no later than 60 days after audit report release date |
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Control Deficiency
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o A control is not operating as intended
o Written report to management not required |
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What needs to be assess on internal audits if auditor decides to use them
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1. Competence
2. Objectivity a. Organizational status b. Areas audited |
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Auditors should assess the Internal Audits Competence by considering
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1. Educational level
2. Professional certifications 3. Audit policies, programs, procedures 4. Practices regarding assignment of internal auditors 5. Supervision and review 6. Quality of documentation 7. Performance evaluation |
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Written Communication regarding Internal Controls should include
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1. The purpose of an audit is to express an opinion on the fs
2. The audit is not expressing an opinion of internal controls 3.consideration of internal control was NOT designed to identify all deficiencies or material weaknesses 4. Definition of material weakness 5. Identify significant deficiencies and material weaknesses 6.Limit use of communication to mgt , those charged with governance |