Audit Coordination & Preparation Flashcards

Which type of audit evidence is generally considered MOST reliable according to auditing standards?

Answer: Evidence obtained directly by the auditor through external confirmation

External confirmations obtained directly by the auditor from third parties (e.g., bank confirmations) are considered most reliable because they are independent of client control.

A controller is preparing flux analysis for auditors. Which threshold is MOST commonly used to flag items for explanation?

Answer: Variances exceeding a defined percentage or dollar threshold relative to prior period or budget

Flux analysis typically uses a combination of percentage and absolute dollar thresholds to identify accounts requiring explanation, ensuring proportionality across account sizes.

Under SOX Section 404, management's assessment of internal controls over financial reporting must be based on which framework?

Answer: A recognized internal control framework such as COSO

SEC rules require management to use a recognized framework, with COSO's Internal Control — Integrated Framework being the most widely accepted.

What is the MAIN distinction between a significant deficiency and a material weakness in internal controls?

Answer: A material weakness represents a reasonable possibility of material misstatement; a significant deficiency is less severe

A material weakness creates a reasonable possibility that a material misstatement will not be prevented or detected, while a significant deficiency is a less severe control deficiency.

Which audit coordination practice BEST reduces the risk of last-minute audit adjustments?

Answer: Conducting interim audit procedures during the fiscal year rather than only at year-end

Interim audit procedures allow auditors to test controls and substantive transactions during the year, identifying issues early enough for timely remediation.

A controller must provide auditors with a rollforward of accounts receivable. Which component is LEAST likely to be included?

Answer: Depreciation expense for fixed assets

Depreciation expense is related to fixed assets, not accounts receivable; an AR rollforward includes beginning balance, credit sales, collections, write-offs, and ending balance.

When auditors issue a management letter (letter of recommendations), the financial controller's BEST response is to:

Answer: Provide a formal written response with remediation plans and target dates for each finding

A formal written response with specific remediation plans and deadlines demonstrates accountability and provides a record of management's commitment to improving controls.