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Flashcards in 7 Systems and controls Deck (16)
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1
Q

What is internal controls?

A

The process designed and effected by the directors and others to enable the achievement of the entity objectives with regard to reliability of financial reporting.

2
Q

What are the five components for internal control?

A
  1. Control environment
  2. Entities risk assessment process
  3. Information system relevant to financial reporting
  4. Control activities
  5. Monitoring of controls
3
Q

What is the control environment?

A

Includes the attitude and philosophy of management with regard to control (commitment to integrity and ethical values, a formal organisation structure and proper training of staff)

4
Q

What is the entities risk assessment process?

A

A more robust risk assessment process will reduce the risk of misstatement

5
Q

What is information system relating to financial reporting?

A

The auditor should obtain an understanding of the information system including the relate business processes relevant to financial reporting

6
Q

What are the 5 types of control activity?

A
  1. Authorisation
  2. Performance reviews
  3. Information processing
  4. Physical controls
  5. Segregation of duties
7
Q

What does the auditor need to do for internal controls?

A

Ascertain the system, document the system and evaluate the system.

8
Q

What does the auditor do to ascertain the system?

A
Examine previous work
Clients own documentation
Interview client staff
Walkthrough test
Observe procedures
9
Q

What does the auditor do to document the system?

A

Narrative notes
Organisation chart
Complete an internal control questionnaire
Flowcharts

10
Q

What does the auditor do to evaluate the system?

A

Use an internal control evaluation questionnaire

11
Q

What does ICQ do?

A

List all possible controls for each area of the accounts; the clients system is examined to see which control exists

12
Q

What does an internal control evaluation do?

A

Does not attempt to recored all controls, for each control objective, it asks for the controls which achieve that objective.

13
Q

What is the auditors duty for external controls?

A

Assess the effectiveness of internal controls and reporting deficiencies in internal controls to those charge with governance

14
Q

What does a management letter contain?

A

Covering letter, appendix

15
Q

What is included in the covering letter?

A

Only cover deficiencies identified during the audit work, sole use of the company, no disclosure to third parties and no responsibility assumed to any other parties

16
Q

What is included in the appendix?

A

Lists: Deficiencies, consequences, recommendations and space for managements response.