Question 1

Before applying substantive procedures to the details of asset and liability accounts at an interim date, the auditor should:

Accepted Answer

The auditor should consider the ability to perform appropriate substantive procedures to cover the remaining period to ensure that any changes or transactions occurring after the interim date are properly accounted for and do not affect the audit conclusions.

Question 2

Data capture occurs through source documentation, direct data entry, or a combination of the two. List three purposes of data capture controls.

Accepted Answer

The answer of Data capture occurs through source documentation, direct...

Question 3

Trumpeter Corporation is a small publicly traded company that specializes in the restoration and sale of fine musical instruments. The audit committee is made up of a CEO from a technology company, a college accounting professor, and a local marketing executive. All are sufficiently independent from management. Members of the audit committee meet three times a year. Each time they meet, a different member, who chooses the topics to discuss, leads the meeting. The audit committee then sends the minutes of its meetings to the entity's CFO. Solely from this information, what are your conclusions about this audit committee's role within the control environment?

Accepted Answer

The answer of Trumpeter Corporation is a small publicly traded...

Question 4

In terms of an audit, define substantive strategy and reliance strategy. Include in your definition how the different strategies relate to internal control. Which strategy would best relate to a lower control risk?

Accepted Answer

The answer of In terms of an audit, define substantive...

Question 5

What are the differences between document flowcharts, system flowcharts, and program flowcharts?

Accepted Answer

The answer of What are the differences between document flowcharts,...

Question 6

What are four potential tools available to the auditor for documenting her understanding of an entity's system of internal control?

Accepted Answer

The answer of What are four potential tools available to...

Question 7

What are two potential benefits and two potential risks of using IT for an entity's internal control?

Accepted Answer

The answer of What are two potential benefits and two...

Question 8

While performing an audit on the internal controls over financial reporting for AirWaves Corporation, your audit team finds what it considers to be a significant deficiency. AirWaves is a large, private company. What steps would you take to communicate this finding?

Accepted Answer

The answer of While performing an audit on the internal...

Question 9

Why might an auditor decide to test controls at an interim date?

Accepted Answer

The answer of Why might an auditor decide to test...

Question 10

While substantive procedures may support the accuracy of underlying records, these tests frequently provide no affirmative evidence of segregation of duties because:

Accepted Answer

Substantive procedures may support the accuracy of underlying records, but they do not provide affirmative evidence of segregation of duties. This is because the records may be accurate even though they are maintained by persons having incompatible functions. Substantive procedures are designed to obtain evidence about the accuracy and completeness of the underlying transactions reflected in the accounting records. They rarely guarantee the accuracy of the records if only a sample of transactions has been tested. Compliance tests are designed to obtain evidence about compliance with laws, regulations, and policies. Substantive procedures relate to the entire period under audit, whereas compliance tests are ordinarily confined to the period during which the auditor is on the entity's premises. Computerized procedures may limit the auditor's ability to perform substantive procedures if there is no audit trail of who performed them, so the auditor may need to rely on inquiries and observations of office personnel.

Question 11

Internal control has become a very important focus for publicly traded and privately-held companies alike. Internal control is intended to accomplish at least three objectives and consists of five components of internal control. List the three objectives and five components of internal control.

Accepted Answer

The answer of Internal control has become a very important...

Question 12

Describe the limitations of internal control. Why do limitations on internal control exist?

Accepted Answer

The answer of Describe the limitations of internal control. Why...

Question 13

The program flowcharting symbol representing a decision is a:

Accepted Answer

The diamond shape represents a decision point in a flowchart where the program will take one of two or more paths based on a certain condition. Therefore, the best choice is the symbol represented by the letter D, which is the diamond shape.

Question 14

What are some typical types of evidence that may be collected in testing an entity's internal controls?

Accepted Answer

The answer of What are some typical types of evidence...

Quiz 6: Internal Control in a Financial Statement Audit