Auditing and Internal Controls Flashcards
6 cards from real Accounting Online Program practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Auditing and Internal Controls flashcards as text
The primary purpose of an external audit is to:
Answer: Express an opinion on whether financial statements are fairly presented
External auditors issue an independent opinion on whether financial statements are presented fairly in accordance with GAAP, providing assurance to investors and creditors.
Which organization sets auditing standards for public company auditors in the US?
Answer: PCAOB
The Public Company Accounting Oversight Board (PCAOB) was established by the Sarbanes-Oxley Act to set auditing standards for auditors of US public companies.
What is the concept of 'audit risk'?
Answer: The risk that auditors will issue an incorrect opinion on materially misstated statements
Audit risk is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
Internal controls are designed primarily to:
Answer: Safeguard assets, ensure accurate reporting, and promote operational efficiency
Internal controls are policies and procedures designed to safeguard company assets, ensure reliable financial reporting, and promote compliance with laws and regulations.
Which Sarbanes-Oxley Act section requires management to assess and report on internal control over financial reporting?
Answer: Section 404
SOX Section 404 requires management of public companies to assess the effectiveness of internal controls over financial reporting and requires auditors to attest to that assessment.
Segregation of duties is an internal control that prevents fraud by:
Answer: Ensuring no single person controls all phases of a transaction
Segregation of duties separates the authorization, custody, and recording of transactions among different employees so that errors or fraud require collusion.