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Audit (acct 407) Chapter 5
Internal Controls
15
Accounting
Undergraduate 4
04/03/2010

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Cards

Term
3 responsibilities of mgmt concerning internal ctrls
Definition
1. SOX 2. certify FS 3. report on IC
Term
3 things included on company's annual report concerning IC
Definition
1. statement that mgmt is responsible for establishing and maintaining IC over finc reporting 2. statement IDing the framework used to evaluate the effectiveness of IC (COSO) 3. statment providing mgmt's assessment of effectives of IC
Term
5 components of IC
Definition
1. control environment 2. info & comm 3. monitoring 4. ctrl procedures 5. risk assessment
Term
control environment (component of IC)
Definition
tone at the top. mgmt's behavior and attitude: ethical behavior, audit committee, good people hired (ELC)
Term
info & comm (component of IC)
Definition
reliable and relevant info communicate4d timely, classified correctly, and valued correctly
Term
monitoring (component of IC)
Definition
performance reviews. employees doing their jobs? repercussions if not (ELC)
Term
ctrl procedures (component of IC)
Definition
small and specific ctrl procedures. authorized/approved/verified/reconciled transactions. physical and computer controls.
Term
risk assessment (component of IC)
Definition
company IDing threats to success? not the most important component.
Term
3 general phases of IC eval
Definition
1. understand and document client's IC (questionnaire, narrative, flowcharts) 2. assess ctrl risk (how do we think ctrls are operating) 3. testing and reassessment
Term
What is AS5?
Definition
audit of IC over Finc reporting (anything else?)
Term
6 specific phases of IC audit
Definition
1. plan the engagement 2. use a top down approach to gain understanding (ELC to specifics) 3. test IC design and operating effectiveness 4. eval ctrl deficiencies 5. wrap up: form an opinion 6. report on IC
Term
3 levels of ctrl breakdown
Definition
1. material weakness 2. significant deficiencies 3. control deficiencies
Term
material weakness (IC breakdown)
Definition
reasonable possibility that a material misstatement could be in FS
Term
significant deficiencies (IC breakdown)
Definition
not material issues, but could impact FS
Term
control deficiencies (IC breakdown)
Definition
not too bad ctrl issues. inform mgmt so it doesnt get bigger
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