Auditing & Internal Controls Flashcards

Which audit procedure provides the most reliable evidence about the existence of accounts receivable?

Answer: Sending positive confirmations directly to customers

Evidence obtained directly from independent third parties, such as confirmations, is generally the most reliable evidence of existence.

In attribute sampling for a test of controls, which change would increase the required sample size?

Answer: Decreasing the acceptable risk of overreliance

Accepting less risk of overreliance requires more confidence, which needs a larger sample.

An internal auditor finds that expense reports below $500 are never reviewed, and many employees submit claims of $495–$499. What fraud indicator does this suggest?

Answer: Threshold avoidance or splitting

Clusters of transactions just below an approval limit suggest employees are deliberately avoiding the review threshold.

Which of the following is an IT general control rather than an application control?

Answer: Restricting programmer access to production systems

Access controls over production environments apply across all applications and are classified as IT general controls.

The fraud triangle consists of which three elements?

Answer: Pressure, opportunity, and rationalization

The fraud triangle says fraud typically involves a pressure or incentive, an opportunity, and a rationalization.

A walkthrough of a process is primarily performed to:

Answer: Confirm understanding of the process and verify that controls have been implemented

A walkthrough traces one transaction through the process to confirm the auditor's understanding and whether the controls are designed and in place.

Under the IIA's Three Lines Model, which function is part of the second line?

Answer: Risk management and compliance functions

Second-line roles such as risk management and compliance provide expertise, support, and monitoring of risk-related matters.