Module 3 - Understanding Internal Control and Assessing Control Risk Flashcards

1
Q

What are the seven control environment factors?

A

IC-HAMBO

Integrity and ethical values
Commitment to competence
Human resource policies and practices
Assignment of authority and responsibility
Managements philosophy and operating style
Board of directors or audit committee participation
Organizational structure

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2
Q

What are the control activities?

A

PIPS

Performance Reviews
Information Processing
Physical Controls
Segregation of duties

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3
Q

What is the formula for Risk of Material Mistatement

A

Inherent Risk * Control Risk

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4
Q

What is the formula for Detection Risk?

A

Test of Details * Substantive Analytical Procedures Risk

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5
Q

What is Test of Details?

A

Tests of details include tracing figures to supporting documentation to determine if transactions are valid, properly classified, accurate and complete. Tests also include recalculating and confirming recorded information.

Part of ICORRIIA

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6
Q

What are Substantive Tests?

A

SUBSTANTIVE TESTS are those activities performed by the auditor to detect material misstatement or fraud related to transactions or account balances.
There are two categories of substantive tests - analytical procedures and tests of detail.

ICORRIIA

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7
Q

What relationship should Detection Risk have with the Risk of Material Mistatement

A

Inverse Relationship:

The Higher Risk of Material Misstatement, the lower Detection Risk so that it can lower Audit Risk

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8
Q

What affect on Substantive Testing is there if RMM goes up?

A

RMM Goes Up = Detection Risk Go Down = Substantive Testing Goes Up

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9
Q

What affect on Substantive Testing is there if RMM goes down?

A

RMM Goes Down = Detection Risk Go Up = Substantive Testing Goes Down

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10
Q

What are all of the parts of Detection Risk?

Formula and Associated Mnemonic with its parts

A

Detection Risk = Test of Details * Analytical Procedures

ICORRIIA

Inquiry
Confirmation
Observation
Recalculation
Reperformance
Inspection of Tangible Assets
Inspection of Records and Documents
Analytical Procedures
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11
Q

What is the Nmemonic for the 10 Generally Accepted Auditing Standards?

A

TIPPICANOE
TIP-PIC-All Cpas Do Ok

Training and Profeciency
Independence
Professional Care
Planning and Supervision
Internal Controls
Corroborative Appropriate Audit Evidence
Accounting Principles in Accordance with GAAP
No New Principles - Consistency
Omitted Disclosures - None
Express Opinion
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12
Q

What are the General Standards?

A

TIP

Training and Profeciency
Independence
Professional Care

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13
Q

What are the Standards of Field Work?

A

PIC

Planning and Supervision
Internal Controls
Corroborative Appropriate Audit Evidence

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14
Q

What are the principals for Reporting?

A

All CPAs Do Ok

Accounting Principals = GAAP
No New Principals - Consistency
Disclosures - None Omitted
Opinion Expressed

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15
Q

When RIIO is used:

A

Reperformance: Recalculating. Most Effective

Inquiry: Existence of Internal Control Activities

Inspection: Inspect relevent documents

Oberservation: Produces evidence of access of controls, or control leaves no documentary evidence

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16
Q

Order of RIIO from least effective to most effective

A

Inquiry
Observation
Inspection
Reperformance

17
Q

What is required in the understanding of internal controls?

A

To gain an understanding of the design effectiveness and that they were implementated

18
Q

When does the auditor determine if controls are operating effectivly?

A

If the auditor plans to plans to rely on controls, then it needs to determine if controls are operating effectively.
The auditor does not do this if it plans to assess control risk at maximum