Loose-leaf For Auditing & Assurance Services: A Systematic Approach
11th Edition
ISBN: 9781260687637
Author: William F Messier Jr, Steven M Glover Associate Professor, Douglas F Prawitt Associate Professor
Publisher: McGraw-Hill Education
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Question
Chapter 6, Problem 6.13MCQ
To determine
Concept Introduction:
Internal controls are policies and procedures defined by the management to ensure the smooth functioning of the business processes. Internal controls ensure the complete and correct accounting and safeguards to the assets.
To choose: The correct statement about internal controls.
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When considering internal control, an auditor must be aware of the concept ofreasonable assurance, which recognizes that the(1) employment of competent personnel provides assurance that management’scontrol objectives will be achieved.(2) establishment and maintenance of internal control is an important responsibilityof management and not of the auditor.(3) cost of internal control should not exceed the benefits expected to be derivedtherefrom.(4) separation of incompatible functions is necessary to ascertain that the internalcontrol is effective
When obtaining an understanding of an entity’s internal control, an auditor should concentrate on the substance ofcontrols rather than their form because:Select one:
a.
Management may establish appropriate controls but not enforce compliance with them.
b.
The controls may be operating effectively but may not be documented.
c.
The controls may be so inappropriate that no reliance is contemplated by the auditor.
d.
Management may implement controls whose costs exceed their benefits.
Management is primarily responsible for maintaining effective internal control and ensuring the fairness of the company's financial statements. Auditors must maintain professional skepticism to exercise due professional care. Management is responsible for effective internal control. That is a correct statement. What the penalties are if management does not create an effective control environment? Please explain
Chapter 6 Solutions
Loose-leaf For Auditing & Assurance Services: A Systematic Approach
Ch. 6 - Prob. 6.1RQCh. 6 - Prob. 6.2RQCh. 6 - Prob. 6.3RQCh. 6 - Prob. 6.4RQCh. 6 - Prob. 6.5RQCh. 6 - Prob. 6.6RQCh. 6 - Prob. 6.7RQCh. 6 - Prob. 6.8RQCh. 6 - Prob. 6.9RQCh. 6 - Prob. 6.10RQ
Ch. 6 - Prob. 6.11RQCh. 6 - Prob. 6.12MCQCh. 6 - Prob. 6.13MCQCh. 6 - Prob. 6.14MCQCh. 6 - Prob. 6.15MCQCh. 6 - Prob. 6.16MCQCh. 6 - Prob. 6.17MCQCh. 6 - Prob. 6.18MCQCh. 6 - Prob. 6.19MCQCh. 6 - Prob. 6.20MCQCh. 6 - Prob. 6.21MCQCh. 6 - Prob. 6.22MCQCh. 6 - Prob. 6.23MCQCh. 6 - Prob. 6.24MCQCh. 6 - Prob. 6.25PCh. 6 - Prob. 6.26PCh. 6 - Prob. 6.27PCh. 6 - Prob. 6.28PCh. 6 - Prob. 6.29PCh. 6 - Prob. 6.30PCh. 6 - Prob. 6.31P
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- Internal control should be designed to provide reasonable assurance that a. Management’s planning, organizing, and directing processes are properly evaluated b. Management’s plans have not been circumvented by employee collusion c. Material errors or fraud will be prevented, or detected and corrected within a timely period by employees in the course of performing their assigned duties d. The internal auditing department’s guidance and oversight of management’s performance is accomplished economically and efficientlyarrow_forwardExplain why managers who outsource their IT function may or may not also outsource responsibility for IT controls. What options are open to auditors regarding expressing an opinion on the adequacy of internal controls?arrow_forwardWhich one of the following is not included in the control environment? a. Integrity & Ethical values b. Organizational Structure c. Competence of Personnel d. External Auditorarrow_forward
- The underlying assumption of reasonable assurance regarding implementation of internal control means thata. auditor is reasonably assured that fraud has not occurred in the period.b. auditors are reasonably assured that employee carelessness can weaken an internal control structure.c. implementation of the control procedure should not have a significant adverse effect on efficiency or profitability.d. management assertions about control effectiveness should provide auditors with reasonable assurance.e. a control applies reasonably well to all forms of computer technology.arrow_forwardThe purpose of ____________ is to help manage and control risk appropriately rather than to eliminate it. Internal accounting Internal control system External audit Risk managementarrow_forwardWhich of the following statements is characteristic of monitoring activities within the internal control system? Monitoring of the internal control system is the responsibility of the company’s external auditors. Monitoring of internal control activities is not required if the company hires honest, ethical employees. Monitoring of the internal control system is the responsibility of management. The board of directors need not be concerned with results of the monitoring of the internal control system.arrow_forward
- Identify how each of the following statements relates to the performance principle by considering which element(s) of the principle are related to that statement. (A statement may be related to more than one element.) Use the following elements in providing your response: Reasonable assurance • Planning and supervision • Materiality ⚫ Risk assessment • Audit evidence a. Evaluating the effectiveness of the client's internal control in preventing or detecting misstatements. b. Obtaining an understanding of the client's business and industry. c. Acknowledging that the risk of failing to detect a material misstatement cannot be reduced to zero. d. Obtaining confirmations from the client's customers as to the ending balances in accounts receivable. e. Preparing a written audit plan. f. Designing audit procedures to identify misstatements that would have a significant effect on financial statement users' decisions. g. Considering the likelihood that the account balance contains a material…arrow_forwardReasonable assurance that the objectives of internal control are achieved depends on the competence and integrity of personnel. TRUE OR FALSE? WHY?arrow_forwardAn auditor is likely to use procedures to support the operating effectiveness of internal controls. Which of the following would generally not be used ? Select one : O a. Re -perform client procedures O b. Examine documents , records, and reports O c. Make inquiries of appropriate client personnel O d. Analytical proceduresarrow_forward
- An internal auditor is examining the effectiveness of procedures management established to protect customer data from cyberattacks and whether those procedures are cost effective. This is an example of an operational audit. Question options: True Falsearrow_forwardCompare the designs of your choice of two internal controls. Determine which is the preferred design for the implementation of internal controls and why it is more likely to detect accounting irregularities. Provide at least two reasons why the preferred design for internal controls is more effective than the other design. Provide a rational for your choice.arrow_forwardConsider the “control environment.” Asses why it is important for auditors to understand a client’s control environment. What are some limitations of internal controls?arrow_forward
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