ACCT 107 Chapter Notes - Chapter 15: Internal Control, Financial Statement, Audit Risk

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beigewhale811

21 Oct 2020

School

American River College

Department

Accounting

Course

ACCT 107

Professor

Dr.Charles“ Kale” Braden

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Document Summary

The responsibilities of management and the auditor: the responsibilities for internal controls differ between management and the auditor, management: establish and maintain the entity"s internal controls. For public companies, management is required to publicly report on the operating effectiveness of internal controls over financial reporting. The framework used by most public companies is coso (committee of sponsoring organization of the treadway commission) Management must evaluate the design of internal control over financial reporting and then test the operating effectiveness of those controls. Two key concepts underline managements design and implementation of controls: reasonable assurance: controls provide reasonable assurance that the financial statement is fairly stated cost vs. Obtaining this understanding of internal controls are applied to all audits, even when an auditor does not intent to place reliance on internal controls. When assessing control risk, auditors are concerned with both entity-level and transaction controls.

Related Questions

Assignment 3: External and Internal Audit

Auditing is a very broad topic that covers all aspects of an organization. An audit not only examines the accuracy of financial statements but also examines the effectiveness of internal controls as well as the efficiency of overall operations of the organization. To accomplish the objectives of different types of audit within an organization, the audit function is broken down into the role of internal auditor and the external auditor.

In your role as a partner in the CPA firm Dewey, Wright, and Moore, review the following information.

Dewey, Wright, and Moore has just been approached by a new client, AV Imports and Exports, a company that trades goods with various countries. You are in charge of an audit engagement. To determine whether to take on the engagement, you proceed with the overall assessment of risk.

You meet with company management, the board of directors, and the audit committee, and begin communication with the previous audit firm. You also schedule a meeting with the internal auditors to learn more about their role and function within the organization.

In preparation for your scheduled meeting, research the external and internal audit function using your textbook, the Argosy University online library resources, and the Internet. Complete the following:

Compare the similarities between the responsibilities of the external and internal audit functions.

Compare the differences between the benefits of the two functions.

Make a recommendation to the management team based on your research

Present the comparisons in a chart. Include a 3-5 page report summarizing and explaining the chart as well as outlining how you think Dewey, Wright, and Moore can use the services of the internal auditors as part of the overall audit the firm would provide. Give reasons for your assertions and cite your sources.

Submit your chart and report in Word format. Utilize at least three resources in preparing your report. Apply APA standards for writing style to your work.

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1â28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Clientâs management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditorsâ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditorsâ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the clientâs operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a companyâs policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a companyâs internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a companyâs legal department.

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ACCT 107 Chapter Notes - Chapter 15: Internal Control, Financial Statement, Audit Risk

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