Significant IC weakneses are a condition where material errors wouldn't be detected timely by

employees in performing their normal duties

The purpose of the management letter is to inform the

client of the auditor's recommendations on improving IC's

If CR is increased from that originally planned then in order to achieve Planned Audit risk

decrease planned detection risk

Assessing control risk at a level below high most likely would involve

identifying specific int controls relevant to assertions

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of:

the risk that material errors exist in the FS

An auditor has decided that controls are ineffective. The most appropriate audit strategy is

the predominantly substantive approach

In relation to auditor communications of significant deficiencies in IC which is correct

Is incidental to the auditor's understanding of IC's & CR

Which of the following statements about auditor's responsibility for IC is correct

the Auditor can Assess CR at max if SP's are less costly

When considering IC, an auditor isaware of the concept of reasonable assurance which recognises

cost of IC should not exceed benefits to be derived

A transaction walk-through involves:

Tracing a sample of documents thru the accounting process

An auditor uses assessed control risk to:

determine the acceptable level of planned detection risk

The auditor who becomes aware of a reportable condition is required to communicate this to

an appropriate level of management (AWA case)

What is the auditor's principal purpose for obtaining an understanding of internal control

to determine nature, timing & extent of subsequent auditwork

Which statement is incorrect. Test of controls

provide good evidence when control is inconsistently applied

When an auditor issues an unmodified opinion, it is implied that

the fin stats are fairly presented in all material respects

The auditor can conclude that control risk is low

Only after all three steps above are completed

studbud

BAP41 Week 6/7 - Internal Control & Control risk

21 termsStudBud Administration385 plays

#Internal Controls #Control risk

Flashcards21 cardsFPractice quizPHost liveL

Questions 21

Answers

1
Significant IC weakneses are a condition where material errors wouldn't be detected timely by
the CFO when reviewing the fin stats
employees in performing their normal duties
an auditor as part of their annual audit
a financial controller when reconciling the G/L
2
The purpose of the management letter is to inform the
client of the auditor's recommendations on improving IC's
audit committee of disagreements with mgt
clients mgt of the audit opinion of the fin stats
auditor about clients concerns about the audit fee
3
If CR is increased from that originally planned then in order to achieve Planned Audit risk
decrease planned detection risk
increase materiality levels
decrease substantive risk
increase inherent risk
4
An audit strategy will include increased reliance on tests of controls when
IR & CR are low
none of the above
IR & CR are high
internal controls will not prevent or detect material errors
5
Assessing control risk at a level below high most likely would involve
reducing inherent risk
changing the timing of substantive tests
performing additional substantive tests with larger samples
identifying specific int controls relevant to assertions
6
The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of:
the possibility that Subtantive Tests may be reduced
the operating effectiveness of internal controls
the factors raising doubts about the auditability of the FS
the risk that material errors exist in the FS
7
An auditor has decided that controls are ineffective. The most appropriate audit strategy is
the lower assessed level of control risk approach
the predominantly substantive approach
the analytical procedures approach
a combination of lower CR & substantive approach
8
In relation to auditor communications of significant deficiencies in IC which is correct
Such communication is required to be in writing
Is the principal reason for testing & evaluating IC's
Must include a description of all deficiencies
Is incidental to the auditor's understanding of IC's & CR
9
Which of the following statements about auditor's responsibility for IC is correct
the Auditor can Assess CR at max if SP's are less costly
Procedures to understand & test controls are the same
The auditor must gain an understanding of the IC
Auditor obtains evidence that Controls operate effectively
10
When considering IC, an auditor isaware of the concept of reasonable assurance which recognises
maintenance of IC is resp of mgt
separation of incompatible functions is necessary
that employment of competent personnel provides assurance
cost of IC should not exceed benefits to be derived
11
A transaction walk-through involves:
Touring the client's plant and operations
Reviewing the process of recording transactions
Tracing a sample of documents thru the accounting process
Reviewing and evaluating the client's accounting processes
12
For small clients it is often more efficient to adopt a substantive approach, why?
all of the above
Controls may not be effective
May not have resources to implement appropriate controls
The client size means it's inefficient to rely on controls
13
An auditor uses assessed control risk to:
Evaluate the effectiveness of the entity's internal controls
determine the acceptable level of planned detection risk
identify trans & acc where IR is at the max
indicate materiality thresholds are sufficiently high
14
The auditor who becomes aware of a reportable condition is required to communicate this to
an appropriate level of management (AWA case)
the Board of directors and internal auditors
the managing director
internal auditors and senior management
15
What is the auditor's principal purpose for obtaining an understanding of internal control
to determine nature, timing & extent of subsequent auditwork
to obtain a measure of assurance of mgt efficiency
to maintain a state of independence in mental attitude
to comply with accounting stds
16
Which statement is incorrect. Test of controls
are more efficient to perform than substantive tests
based on same types of techniques used to understand CR
if effective allow a reduction in substantive tests
provide good evidence when control is inconsistently applied
17
When an auditor issues an unmodified opinion, it is implied that
the fin stats are fairly presented in all material respects
there are no control deficiencies
the likelihood of fraud is minimal
the entity's IC conforms with Audit Comm criteria
18
The auditor can conclude that control risk is low
After testing the control for effectiveness
After identifying specific controls reducing CR
After obtaining an understanding of the control environment
Only after all three steps above are completed
19
Tests of controls will usually be carried out
at an interim date
only after year end
only when mgt allows the auditor to conduct the tests
only by the audit engagement partner
20
Why do auditors assess a high level of IR for related party transactions
Requirements of generally accepted accounting principles
The accounting disclosure requirement
Lack of independence between the parties
Both A and B
21
Tracing is primarily directed towards verifying which of the following assertions
Existence
Completeness
Valuation
Occurence

BAP41 Week 6/7 - Internal Control & Control risk Flashcards | StudBud