Problem 7: Auditing Sales/Revenue Transactions When an auditor needs to obtain an understanding of the overall internal control first needs to consider the elements of the control environment. To assist the auditor in assessing the level of control risk, the following tests of controls were designed to allow the auditor to

Problem 7: Auditing Sales/Revenue Transactions When an auditor needs to obtain an understanding of the overall internal control first needs to consider the elements of the control environment. To assist the auditor in assessing the level of control risk, the following tests of controls were designed to allow the auditor to

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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After obtaining an understanding of an entitiy's internal control, an auditor may assess control risk at the maximum level for some assertions because he A. performs tests of controls to restrict detection risk to an acceptable level. B. identifies internal control policies and procedures that are likely to prevent material misstatements. C. believes the internal control policies and procedures are unlikely to be effective. D. determines that the pertinent internal control components are not well documented.
13. When the auditors obtain an understanding of internal control for the financing cycle documentation will frequently include a written description as well as a(n): Group of answer choices Decision table List of audit objectives Internal control questionnaire Summary of tests of controls
Francona Madden, an audit manager, considered the control risk assessments listed in theleft column of the following table in evaluating A. Cardinal’s internal control over salestransactions. The sample sizes for the substantive procedures of the customer accountsreceivable are shown to the right of each control risk. What risk of overreliance (ROO)could be assigned for tests of controls at each control risk level? Control Risk Accounts Receivable Sample ROO 0.20 400 ? 0.50 390 ? 0.80 350 ? 0.90 190 10% a. From top to bottom: 5 percent, 10 percent, 1 percent.b. From top to bottom: 10 percent, 1 percent, 5 percent.c. From top to bottom: 1 percent, 10 percent, 5 percent.d. From top to bottom: 1 percent, 5 percent, 10 percent.
As an auditor, it is important to gain a comprehensive understanding of every aspect of a client’s internal control. This helps in evaluating control risk and preparing for the audit of the client’s financial statements. Choose one of the following questions to discuss: For what purposes should an auditor use their understanding of internal control components to plan an audit? What factors should an audit team consider when trying to reduce the planned assessed level of control risk below the maximum? What are the documentation requirements for a client’s internal control and assessed level of control risk?
Which of the following are true regarding internal auditors and the adequacy of an organization's risk management process I. Internal auditors must understand the risk assessment process and the tools used to make the assessment II. Internal auditors should determine the level'of risks acceptable to the organization III. Internal auditors need to be satisfied that the key objectives of risk management processes are being met IV. Internal auditors should evaluate management's risk processes the same way they analyze risk when planning an engagement O , II, III and IV O None of the choices OI, Il and III only O l and II only O l and III only
Testing a company's internal controls through inspection of documents to see if approval or other checking was performed is specifically referred as ________. a. Documents Trial b. No Trial c. Audit Test d. Test of Controls
Auditors must consider these five components of COSO internal controls when understanding the client and its internal controls Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a control environment, tone at the top, risk assessment, segregation of duties, monitoring b control environment, tone at the top, risk assessment, control activities, monitoring c control activities. control environment, risk assessment, info and communications, monitoring d control activities, control environment, monitoring, tone at the top, info and commumication
Auditing Sales/Revenue Transactions When an auditor needs to obtain an understanding of the overall internal control of a company, the auditor first needs to consider the elements of the control environment. To assist the auditor in assessing the level of control risk, the following tests of controls were designed to allow the auditor to determine if the company’s related controls were operating effectively in the revenue cycle. Determine which of the four management assertion(s) apply to each individual sales (revenue) control being discussed. Hint: many have more than one assertion. Management Assertions: Existence & Occurrence, Rights, Completeness, Valuation 5. The computer assigns a number to every sales invoice. Which management assertions apply to this control? 6. Input validation checks (application controls) are applied to every bill to ensure the accuracy of the billing process. Which management assertions apply to this control?…
Financial audit Q&A What is the process used by auditors in conducting tests of control in testing documents and supporting control files?
Give examples of tests of controls to test theoperating effectiveness of internal controlsin the revenue and collection cycle