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ACC456: Quiz 8
Terms in this set (21)
What policies and procedures does ICFR include? (3)
The accurate and fair maintenance of records of transactions of the entity
Reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with the applicable financial reporting framework and that the transactions follow entity's policies and procedures
Reasonable assurance regarding prevention, or timely detection and correction of deficiencies that could have a material effect on the financial statements
A process effected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the preparation of reliable financial statements in accordance with the applicable financial reporting framework
What are the duties of the audit committee? (4)
Appointment, compensation, and oversight of accounting firm conducting the audit
Resolution of disagreements between management and the audit team
Oversight of the entity's internal audit function
Approval of non-audit services provided by the accounting firm performing the audit
What is the purpose of the audit committee?
To provide a buffer between the audit team and senior management
What does the audit committee consist of?
3-6 outside members of board who are all financially literate, with at least one financial expert
What is the scope, reporting, and timing of controls testing for a financial statement audit of an issuer?
Scope: Test controls if relying on them
Reporting: No opinion on internal control
Timing: Evaluate effectiveness through fiscal year
What is the scope, reporting, and timing of controls testing for an internal control audit of an issuer?
Scope: Test each relevant control activity each year
Reporting: Opinion on the effectiveness of internal control
Timing: Evaluate as of fiscal YE
Do auditors have to test controls for issuers?
Yes, must always test
When can an auditor choose not to test controls? (2)
Internal control system is too ineffective in preventing or detecting misstatements to rely upon, and justify reductions in substantive testing
May take more time to test controls that it would to perform substantive testing
A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of 3 objectives
What should written communications about control deficiencies include? (5)
Definitions of significant deficiencies and material weaknesses and categorization of deficiencies communicated
Description and potential effects of the deficiencies
Statement that the goal is to report on the F/S and not to provide assurance on IC
Statement restricting the use of the information communicated
Audit not designed to identify all deficiencies
Should you report in writing that no significant deficiencies exist?
What are the required communications about control deficiencies for the non-issuers? (2)
Should report control deficiencies in writing or orally to management (if orally, needs to be documented)
All reports should be issued no later than 60 days after the report release date
What are the required communications about control deficiencies for both issuers and non-issuers?
Must communicate in writing to management and the audit committee all significant deficiencies and material weaknesses
What are the required communications about control deficiencies for issuers? (3)
Should be made prior to F/S audit report issuance
May communicate during or at end of audit
May report control deficiencies to management, audit committee, or others
What is the relationship between control reliance and substantive procedures?
The more you rely on internal controls, the less substantive tests you have to perform
(lower control risk, higher detection risk)
What are the auditor's responsibilities related to internal control? (4)
For issuers, auditors must audit and express an opinion on the effectiveness of the ICFR
For each fraud risk, must evaluate whether controls are in place to mitigate the fraud risk
Must assess control risk to determine the NET of substantive procedures to be performed
If planning to rely on control in F/S audit, it must be tested
What are management's responsibilities related to internal control? (3)
Establishing and maintaining adequate ICFR
Identify the framework used to asses the effectiveness of ICFR
Assess and report on the effectiveness of ICFR
What does the concept of reasonable assurance recognize?
The cost of an entity's internal control should not exceed the benefits that are expected to be derived
What are the limitations of internal control? (5)
Collusion among people who are supposed to act independently
Deliberate circumvention by people in the system
Management override by force of authority
What are the three objective categories for internal control?
Reliability of financial reporting
Effectiveness and efficiency of operations
Compliance with applicable laws and regulations
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