Internal Control

Question 1

What are the 3 objectives of internal control?

Answer 1

• reliability of financial reporting
• effectiveness and efficiency of operations
• compliance with laws and regulations

Question 2

Inherent Limitations of IC (COCCHA)

Answer 2

• Cost-benefit consideration
• Override of management
• Collusion
• Changes in condition → inadequacy of internal control
• Human error
• Anticipated transactions (not unusual ones)

Question 3

Components of Internal Control (CRIME)

Among CRIME, what are direct (transaction-specific) components?

Answer 3

• Control activities
• Risk assessment process
• Information system and communication
• Monitoring activities
• Control Environment

NOTE : Control Activities & ISC → direct (transaction-specific)

Question 4

Incompatible Duties (CAR)

Answer 4

• Custody
• Authorization
• Recording

Question 5

Internal Control
1. Understanding
2. Test of Controls

For each number, what is the objective?

Answer 5

1. Understanding - design and implementation
2. TOC - effectiveness

Question 6

Understanding Internal Control
- same procedures as RAP (IOI analytical)
- goal → preliminary assessment of CR
- either go to TOC → ST or straight to ST

Answer 6

Yes

Question 7

Design of IC must be documented.

To test design, an auditor can inquire or observe. True or False?

Answer 7

FALSE - inquire or inspect (maoobserve mo ba yung design)

• Implementation → inquire or observe

Question 8

What are the procedures in TOC?

Answer 8

IOI Reperformance
- goal is final assessment of CR

NOTE : If ↓ CR, basis of conclusion → must be documented (since nagrely ka sa IC, idocument mo ano naging basis mo for your reliance)

Question 9

An auditor notices a weakness in the IC of the client. He must recommend solutions to improve this weakness. True or False?

Answer 9

Weakness = must be communicated to TCWG (✗ recommend)
- recommendation is only a secondary purpose

Question 10

Which is more severe?
Material Weakness or Significant Deficiency?

Answer 10

Material Weakness

Material nga e