obtaining an understanding of internal control involves

Early application is permitted. copyright 2003-2023 Homework.Study.com. If so, the auditor considers (a) whether the facts would have changed the report if he or she had been aware of them and (b) whether there are persons currently relying on or likely to rely on the practitioner's report on the effectiveness of the entity's internal control. A) in-box exercise B) vestibule training C) apprenticeship D) on-job training E) checks and verifications, Which of the following is true regarding systematic study? c. Tested. An internal analysis involves an examination of A) the organization's current vision. In that letter, the responsible party will be asked to provide, among other possible items, a written acknowledgment of their responsibility for establishing and maintaining internal control and their assertion stating their evaluation of the effectiveness of the entity's internal control and specifying the control criteria used. fn2 Specifically, guidance is provided regarding the following: This section does not provide guidance for the following: An entity's internal control over financial reporting fn4 includes those policies and procedures that pertain to an entity's ability to initiate, record, process, and report financial data consistent with the assertions embodied in either annual financial statements or interim financial statements, or both. Stating that the responsible party has performed an evaluation of the effectiveness of the entity's internal control and specifying the control criteria. It is a matter of the auditor's professional judgment Sufficient evidential matter exists or could be developed to support the responsible partys evaluation. The process of monitoring, comparing, and correcting is called: A) controlling. Prior to December 20, 20XX, W Company had an inadequate system for recording cash receipts, which could have prevented the Company from recording cash receipts on accounts receivable completely and properly. f2.0 Process for Understanding Internal Control and Assessing Control Risk The four phases performed by the auditor are: Phase 1 Obtain an understanding of internal control: . To evaluate the operating effectiveness of an entity's internal control, the practitioner performs tests of relevant controls to obtain sufficient evidence to support the opinion in the report. If a written assertion accompanying the practitioner's report contains a statement that the responsible party believes the cost of correcting the weakness would exceed the benefits to be derived from implementing new controls, the practitioner should disclaim an opinion on the responsible party's cost-benefit statement. Restrictions on the scope of the engagement, whether imposed by the client, the responsible party, or by the circumstances, may require the practitioner to withdraw from the engagement, disclaim an opinion, or express a qualified opinion. b. a. ensure the accuracy of business information b. ensure that laws and regulations are followed c. ensure that company policies are in, ____ involves determining what needs to be tested and collecting test data. fn20. Which of the following would not be part of a corporate risk assessment audit: A) Evaluate whether there is a clearly defined risk management policy B) Test the internal controls over procurement C, [{Blank}] validity indicates that your measuring instrument has the ability to predict or agree with constructs external to that which you are measuring. In these circumstances, the practitioner may not need to consider controls that have been superseded. Therefore, the presence of a material weakness will preclude the practitioner from concluding that the entity has effective internal control. Which of the following involves administering a test and later obtaining criterion information? Implemented. C) leading. The likelihood of achievement is affected by limitations inherent to internal control. Examining a design to see if different components in a product occupy the same space is called [{Blank}] . We believe this condition was a material weakness in the design or operation of the internal control of W Company in effect at [date]. A) monitoring outcomes B) implementing plans C) assessing the firm's external environment D) measuring objectives and assigning priorities, Which of the following is considered an appraisal cost? A practitioner may examine the effectiveness of an entity's internal control if the following conditions are met. We believe that our examination provides a reasonable basis for our opinion. (a) All of the above (b) Governmental auditors (c) Internal auditors (d) External auditors. The effectiveness of an entity's internal control might also be adversely affected by factors such as a change in ownership or control, changes in management or other personnel, or developments in the entity's market or industry. Internet Explorer is no longer supported. D) discovering, debating, decidi, A legally defensible performance appraisal is most likely based on __. A material weakness is a condition that precludes the entitys internal control from providing reasonable assurance that material misstatements in the financial statements will be prevented or detected on a timely basis. B) Select the appropriate process control chart. The nature and extent of the procedures a practitioner performs vary from entity to entity and are influenced by factors such as those discussed in paragraph .18. For example, prior to granting a new casino a license to operate, a regulatory agency may request a report on whether the internal control that the responsible party plans to implement will provide reasonable assurance that the control objectives specified in the regulatory agency's regulations will be achieved. For example, the responsible party may select the definition and description of internal control based on the internal control framework set forth in Internal ControlIntegrated Framework, fn7 published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. An unqualified opinion on the effectiveness of the entity's internal control or the written assertion thereon can be expressed only if the practitioner has been able to apply all the procedures he or she considers necessary in the circumstances. Get contacted by recruiters directly with our newest chat feature! For example, the practitioner may examine documents regarding controls for which documentary evidence exists. Stating that the responsible party has disclosed to the practitioner all significant deficiencies in the design or operation of internal control which could adversely affect the entity's ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements and has identified those that it believes to be material weaknesses in internal control. Bayt.com is the leading job site in the Middle East and North Africa, connecting job seekers with employers looking to hire. D) Focus on attitudinal relationships. with obtaining an understanding of internal control and how a walk-through might be used to meet those requirements. Authorized. Traditionally,inpsychologicalresearch,subjectsareassigneda passiverolewithrespecttotheircontroloverincomingstimuli.This . We have examined the effectiveness of W Company's internal control over financial reporting as of December 31, 20XX, based on [identify criteria]. B) It attributes causes and effects based on intuition. 315 UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT (Issued January 2004) Auditors are required to comply with the requirements of this SAS in respect of audits of financial statements for periods beginning on or after 15 December 2004. The responsible party may present its written assertion in either of the following: The responsible partys written assertion about the effectiveness of an entity's internal control may take many forms. Such information, included in the Appendix [paragraph .84], in Rule 17a-5, and in Form N-SAR, is not covered by this section. See paragraphs .78.81. Answer and Explanation: The correct option is (c). \\ A) controlling B) leading C) evaluating D) monitoring, Tactical control focuses on _____. Implemented. However, the practitioner should report any condition that comes to his or her attention during the course of the examination that he or she believes is a material weakness, even though it may not be covered by the criteria. Effectiveness of controls that have been implemented. The practitioner's consideration of such subsequent information is similar to an auditor's consideration of information discovered subsequent to the date of the report on an audit of financial statements described in AU section 561, Subsequent Discovery of Facts Existing at the Date of the Auditor's Report. Additionally, controls can be circumvented by the collusion of two or more people or management override of internal control. A) behavioral B) conceptual C) directive D) analytical E) satisfactory, The two broad groupings of information systems control activities are general controls and application controls. ), The practitioners opinion on whether the entity has maintained, in all material respects, effective internal control over financial reporting as of the specified date based on the control criteria. Additionally, to obtain information about whether changes have occurred that might affect the effectiveness of the entity's internal control and, therefore, the practitioner's report, he or she should inquire about and examine, for this subsequent period, the following: If the practitioner obtains knowledge about subsequent events that he or she believes significantly affect the effectiveness of the entity's internal control as of the date specified in the assertion, the practitioner should report directly on the effectiveness of the entitys internal control, and issue a qualified or an adverse opinion. These include the realities that human judgment in decision-making can be faulty, and that breakdowns in internal control can occur because of human failures such as simple error or mistake. Based on these considerations, detailed guidance is provided for the auditor in AU section 561.06. The effectiveness of B Company's internal control over financial reporting was examined by other accountants whose report has been furnished to us, and our opinion, insofar as it relates to the effectiveness of B Company's internal control over financial reporting, is based solely on the report of the other accountants. The components that constitute an entity's internal control are a function of the definition and description of internal control used by the responsible party for the purpose of assessing its effectiveness. C) attribute it to consensus. Learn faster with spaced repetition. Register now Which of the following outcomes is a likely benefit of information technology used for internal control? B) lack of control mechanisms. fn19 This description of a material weakness differs from the definition of a material weakness discussed in paragraph .37. The auditor assesses control risk for an assertion at maximum if he or she believes that controls are unlikely to pertain to the assertion, that controls are unlikely to be effective, or that an evaluation of their effectiveness would be inefficient. If the practitioner is requested by one party to examine the effectiveness of another entity's internal control, he or she may want to restrict the report to the party making the request. fn22 The following form of the report is appropriate in these circumstances. B) How well do they perform these assigned work activities? A. In all audits, the auditor should obtain an understanding of internal control. B. D) It analyzes relationships base, The __________ principle helps preserve the component of an unbroken line of authority. ), A statement that the assertion is the responsibility of the responsible party, A statement that the practitioners responsibility is to express an opinion on the written assertion based on his or her examination, A paragraph stating that, because of inherent limitations of any internal control, misstatements due to errors or fraud may occur and not be detected (In addition, the paragraph should state that projections of any evaluation of internal control over financial reporting to future periods are subject to the risk that internal control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 1) obtain an understanding of the internal control structure; 2) identify specific controls relevant to specific financial statement assertions; and 3) test the identified controls to determine if they are operating effectively. b.A condition in which the lack of conformity with the regulatory agency's criteria is material in accordance with any guidelines for determining materiality that are included in such criteria. C) Be behaviorally based. For example, if the practitioner determines that the new controls achieve the related objectives of the control criteria and have been in effect for a sufficient period to permit the practitioner to assess their design and operating effectiveness by performing tests of controls, the practitioner will not need to consider the design and operating effectiveness of the superseded controls. Internally caused behaviors are: A) resulting from personality traits. Detection risk is the risk that an auditors substantive procedures will not detect a material misstatement that exists in an account balance or class of transactions. The practitioner should modify the standard reports if any of the following conditions exist. A) return on investment B) benchmarking C) onboarding D), Individuals with an external locus of control believe: A) They control their own future B) Both internal and outside forces control their future C) Someone else controls their future D) None of the above. A) Identify critical product characteristics. fn10 As discussed in paragraph .13, the components that constitute an entitys internal control are a function of the definition and description of internal control selected by the responsible party. Regardless of whether the practitioners client is the responsible party, the responsible partys refusal to furnish a written assertion as part of an examination engagement should cause the practitioner to withdraw from the engagement.
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