Chapter 8 Audit plan - Internal Control 1. In understanding a client\'s internal

Question

Chapter 8 Audit plan - Internal Control 1. In understanding a client's internal control, the most important aspect of any internal control is Hint: Think of substance versus form] a. having competent and trustworthy personnel who follows internal control policies and procedures b. obtaining sufficient information about a client's risk assessment relevant to the preparation of financial statements. c. separating the function (duty) of authorization, record keeping, and asset custody. d. monitoring the operating effectiveness and efficiency of internal controls by management. 2. In an audit of ICFR (Internal Control over Financial Reporting), the auditor encountered a more than minor scope limitation in identifying a reasonably possible and significant deficiency that has no material magnitude, the auditor would normally issue a. a qualified opinion. b. an unqualified opinion. c. a disclaimer. d. an adverse opinion. 3. Which of the following is an incorrect characterization of the auditor's test and evaluation of the operating effectiveness of a control in an audit of ICFR (integrated audit)? control is operating as designed. effectiveness of a control. indicated in management's internal control report. for determining the extent of testing for the current year audit. a. The objective of the test and evaluation of controls is to obtain evidence on whether the b. The auditor does not use the procedure of inquiry to test and evaluate the operating c. The timing of tests of controls is to determine whether the controls are operating "as of date d. The auditor incorporate knowledge obtained from prior years' audits into the judgment process

Explanation / Answer

1 (d) : Segregation of function (Duty) is a fundamental element of Internal Control. Segreagtion of duty requires that no single person should have the authority to perform two of the following three functions : custody, recording, authorization. Eg : Same accountant should not receive and record cash . It helps to prevent fraud.

2 (a) :Qualified Opinion : There are four types of audit opinion Qualified , Unqualified, Adverse and Disclaimer opinion . Auditor expresses Qualified opinion when there is limitation on scope that is material but not pervasive.

3 (c) : the timing of test of test of controls is to determine whether controls are operating throughout a particular period and not "as of date".

Therefore (c) is incorrect

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