What is the first line of defense in the control structure?
Preventive Controls
What limitation of internal control is illustrated by collusion?
Circumvention
As a control measure, an error should be immediately corrected. True or False?
False
Give three of the numerous elements of the control environment.
- Integrity and ethical values of the management
- Management philosophy and operating style
- structure of the organisation
What are the components of the COSO framework?
- Control Environment
- Risk Assessment
- Control Activities
- Information and Communication
- Monitoring
Give some examples of best practices that BODs adopt to provide a control environment.
- Separation of the CEO and the chairman
- Establishment of Code of Ethics
- Nominating of committees that would ensure that the board members are independent
- Independent audit committee and active compensation committee
What does an effective accounting information system do/achieve?
- Identify and record ALL VALID transactions
- Provide timely information
- Accurately measure the financial value of information
- Accurately record the financial transactions in the time period they occurred
What are some of the ways internal auditors monitor an entity’s activities?
- judicious use of management reports
- embed control modules
- testing and assessing strengths and weaknesses
What are the two categories of control activities?
- IT control
- Physical control
What does independent verification achieve?
- assess the performance of individuals
- assess the integrity of transaction processing systems
- assess the correctness of data in accounting records
Give the broad groupings of IT controls.
- General controls
- Application controls
Give two examples of advisory services
- Bookkeeping
- Actuarial Services
External (financial) audits are (advisory, attestation) services.
Attestation
A client in a dying industry is likely to possess what risks?
Inherent
What does CFE stand for?
Certified Fraud Examiner
As control risk increases, detection risk (increases or decreases).
decreases
What are the three classes of auditing standards?
- General Standards
- Field Work Standards
- Reporting Standards
The items in the F/S are correctly classified, footnotes adequate.
a) Existence or occurrence
b) Completeness
c) Rights and Obligations Valuation or d) d) Allocation
e) Presentation and Disclosure
Presentation and Disclosure
That all assets, equities, sales, expenses in the F/S are real.
a) Existence or occurrence
b) Completeness
c) Rights and Obligations Valuation or d) d) Allocation
e) Presentation and Disclosure
Existence of Occurrence
That no material assets, equities or transactions are omitted from the F/S.
a) Existence or occurrence
b) Completeness
c) Rights and Obligations Valuation or d) d) Allocation
e) Presentation and Disclosure
Completeness
What does INDEPENDENCE of an auditor mean? (2 pts)
In auditing, “independence” means the auditor’s freedom from any bias, conflict of interest, or external influence that could impair their ability to objectively evaluate and report on a company’s financial statements, ensuring they can make unbiased judgments based on evidence during the audit process.
What is audit risk? (2 pts)
Audit Risk is the probability that the auditor will render an unqualified (clean) opinion on financial statements that are, in fact, materially misstated.
