Internal Control
This describes the process of requiring more than one individual to complete a task, and requires collusion in order for a fraud to occur.
What is Segregation of Duties?
This describe the failure of an auditor to use minimal care and represents a reckless disregard for the truth.
What is Gross Negligence?
In order for evidence to effectively support and corroborate management's assertions, it must have these two qualities.
What is Sufficient and Appropriate?
Auditors need to obtain this level of assurance as to whether financial statements are free from material misstatement.
What is Reasonable Assurance?
Together, these three terms comprise the "Fraud Triangle".
What is:
1. Pressure
2. Opportunity
3. Rationalization
There are four types of tests that can be used to assess the effectiveness of internal controls. Name two of them.
What is:
1. Inquiry
2. Inspection
3. Observation
4. Reperformance / Recalculation
This type of law includes laws that have been based by the government, including federal securities law and state statutes.
What is Statutory Law?
This term refers to the significance / importance of an item, is a matter of professional judgment, and influences the nature / amount of testing that needs to be performed.
What is Materiality?
This attitude includes a questioning mind and a critical assessment of audit evidence.
What is Professional Skepticism?
This is the group the internal audit function should report to within a company.
What is the Audit Committee / Board of Directors?
The COSO Framework / Cube is comprised of five different components. Name three of them.
What is:
1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information & Communication
5. Monitoring Activities
There are four potential defenses against breach of contract law suits. Name two of them.
What is:
1. Auditor did not have a duty to perform the service
2. Auditor exercised due professional care
3. Client was contributorily negligent
4. Client's losses were not caused by the breach of contract
There are four types of risk included in the audit risk model. Name two of them.
What is:
1. Audit Risk
2. Inherent Risk
3. Detection Risk
4. Control Risk
Section 404 of this act requires management assessment and external audit firm attestations over the effectiveness of internal controls.
What is the Sarbanes Oxley Act of 2002? (SOX)
This Act requires companies to file a prospectus before they can begin issuing stock to the public.
What is the Securities Act of 1933?
These control activities only affect certain processes, transactions, accounts, and assertions.
What are Transaction / Application Controls?
This type of liability allows users who experience a loss to recover full damages from multiple defendants regardless of the level of fault of the parties.
What is Joint and Several Liability?
This action describes the process of taking a sample of recorded transactions and obtaining original source documents supporting the recorded transaction.
What is Vouching?
There are four types of opinions that can be issued. Name two of them.
What is:
1. Unqualified / Unmodified
2. Qualified
3. Adverse
4. Disclaimer of Opinion
These procedures can be performed to assess trend / ratio analysis and may be used to decrease the amount of substantive testing required in an audit.
What are Analytical Procedures?
This term describes a step-by-step record by which accounting or other financial data can be traced through the entire process, back to their source.
What is an Audit Trail?
To win a claim against an auditor, third parties suing must generally prove these three things.
What is:
1. They suffered a loss
2. The loss was due to reliance on misleading financial statements
3. The auditor knew (or should have known) that the statements were misleading.
This period describes the period between the interim date and the balance sheet date.
What is the Roll Forward Period?
There are five primary assertions that auditors will evaluate as part of the opinion formulation process. Name two of them.
What is:
1. Existence
2. Completeness
3. Rights and Obligations
4. Valuation
5. Presentation and Disclosure
We discussed six red flags relevant to related party transactions. Name three of them.
What are:
1. Interest Free Loans
2. Loans to Officers / Board Members
3. Purchases at Bargain Prices
4. Premium Prices for Generic Products
5. Unusual Rights of Return
6. Unusual Repayment Terms