Auditing & Internal Controls Flashcards

An auditor vouches a sample of recorded purchases to receiving reports. Which assertion is primarily being tested?

Answer: Occurrence

Vouching from recorded entries back to supporting documents tests whether the recorded transactions actually occurred.

Which situation most likely indicates lapping of accounts receivable?

Answer: Customer complaints that payments were credited to their accounts late

In lapping, one customer's payment is stolen and later covered with another customer's payment, so credits post late.

The primary purpose of a control self-assessment (CSA) program is to:

Answer: Involve process owners in evaluating their own risks and controls

CSA has management and staff assess their own risks and controls, which builds ownership and supplements internal audit work.

Which concept means internal controls give reasonable, but not absolute, assurance?

Answer: Controls can be overridden by management, defeated by collusion, and limited by cost-benefit decisions

Built-in limits such as human error, collusion, management override, and cost constraints mean controls cannot guarantee outcomes.

An auditor observes the physical inventory count. Which assertion does observation mainly support?

Answer: Existence

Observing the count gives direct evidence that the recorded inventory physically exists.

Which of the following is a preventive control in a purchasing cycle?

Answer: Requiring an approved purchase order before goods can be ordered

Requiring approval before ordering stops unauthorized purchases before they happen.

If an internal auditor discovers evidence of possible fraud involving a senior executive, the most appropriate initial action is to:

Answer: Inform appropriate levels of management and the board per established policy

IIA guidance calls for reporting suspected fraud to appropriate management and the board, often the audit committee, following policy and legal advice.