Auditing and Internal Controls Flashcards

Which OMB circular specifically requires federal agencies to assess and report on internal controls over financial reporting using a recognized framework such as COSO?

Answer: OMB Circular A-123

OMB Circular A-123 (Management's Responsibility for Enterprise Risk Management and Internal Control) requires agencies to establish, assess, and report on internal controls.

In the context of DoD audits, what is the purpose of a corrective action plan (CAP)?

Answer: To describe management's planned actions to remediate identified control weaknesses

A CAP documents the specific steps management will take to remediate control deficiencies or audit findings, including timelines and responsible officials.

A preventive internal control is best described as a control that:

Answer: Stops errors or irregularities from occurring in the first place

Preventive controls are designed to deter or stop errors and fraud before they occur, such as authorization requirements and access restrictions.

Under GAGAS, a performance audit that evaluates whether a program is achieving its intended outcomes is classified as what type of objective?

Answer: Effectiveness objective

Effectiveness objectives in performance audits assess the extent to which a program achieves its intended results or outcomes.

Which of the following best describes 'segregation of duties' as an internal control in DoD financial operations?

Answer: Dividing transaction responsibilities so no single individual controls all phases

Segregation of duties divides authorization, custody, and recording functions among different personnel to reduce the risk of error and fraud.

The audit risk model expresses audit risk as a function of which three components?

Answer: Inherent risk, Control risk, and Detection risk

Audit risk = Inherent Risk × Control Risk × Detection Risk; auditors manage detection risk to achieve an acceptable overall audit risk level.

In DoD, which office is primarily responsible for conducting independent evaluations of internal controls and financial management practices within a military department?

Answer: Inspector General (IG)

The Inspector General conducts independent audits and investigations to evaluate internal controls, financial management, and program integrity within DoD components.