Auditing Internal Controls Flashcards
7 cards from real CBA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing Internal Controls flashcards as text
Under FDICIA Section 112, banks with assets above a specified threshold must obtain an external auditor's attestation on management's assessment of:
Answer: Internal controls over financial reporting
FDICIA Section 112 requires larger banks to have management assess internal controls over financial reporting and obtain external auditor attestation of that assessment.
A 'material weakness' in internal controls is distinguished from a 'significant deficiency' primarily by:
Answer: The likelihood and magnitude of potential misstatement
A material weakness represents a reasonable possibility that a material misstatement will not be prevented or detected, whereas a significant deficiency is less severe.
When auditing a bank's wire transfer controls, which risk is MOST relevant that auditors should test specific controls for?
Answer: Unauthorized or fraudulent outbound wire transfers
Unauthorized or fraudulent wire transfers represent the highest risk because they result in immediate, often irreversible loss of funds.
In evaluating the design adequacy of a control, an auditor is assessing whether:
Answer: The control, if operating as intended, would effectively mitigate the risk
Design adequacy assesses whether a control is theoretically capable of preventing or detecting a misstatement or risk if it operates as intended.
Which of the following BEST describes a 'walk-through' in the context of internal control auditing?
Answer: Tracing a transaction from initiation to recording while observing controls
A walk-through traces a single transaction through the entire process while the auditor observes controls being performed, confirming process understanding.
The 'three lines of defense' model in banking assigns internal audit to which line?
Answer: Third line — independent assurance
Internal audit represents the third line of defense, providing independent assurance on the effectiveness of the first two lines.
An auditor testing a bank's reconciliation controls finds that the reconciliation is prepared but never reviewed or approved. This represents:
Answer: A design deficiency because the control is incomplete
A reconciliation without supervisory review is a design deficiency because an effective reconciliation control requires both preparation and independent review.