ACCT 407 EXAM 2 QUESTIONS AND CORRECT ANSWERS

ACCT 407 EXAM 2 QUESTIONS AND
CORRECT ANSWERS
InternalA2ControlsA2EvaluationA2-
A2Ans--"AdequateA2internalA2controlsA2areA2theA2firstA2lineA2ofA2defenseA2inA2detectingA2an
dA2preventingA2materialA2errorsA2orA2fraudA2inA2financialA2reportingA2.A2.A2.A2whenA2internal
A2controlA2deficienciesA2areA2leftA2unaddressed,A2financialA2reportingA2qualityA2canA2suffer
."

3A2ObjectivesA2forA2reasonableA2InternalA2ControlA2AssuranceA2-A2Ans--
1.A2ReliabilityA2ofA2financialA2reporting
2.A2EffectivenessA2andA2efficiencyA2ofA2operations
3.A2ComplianceA2withA2applicableA2lawsA2andA2regulations

Management'sA2ResponsibilityA2forA2InternalA2ControlA2-A2Ans--
1.A2EstablishingA2andA2maintainingA2adequateA2internalA2controlA2overA2financialA2reportin
gA2
2.A2AssessA2andA2reportA2onA2theA2effectivenessA2ofA2internalA2controlA2overA2financialA2re
porting

Auditor'sA2ResponsibilityA2-A2Ans--
1.A2ForA2publicA2companies,A2mustA2auditA2andA2issueA2anA2opinionA2aboutA2theA2effective
nessA2ofA2theA2internalA2controlA2overA2financialA2reporting
2.A2ForA2eachA2fraudA2risk,A2mustA2evaluateA2whetherA2controlsA2areA2inA2placeA2toA2mitig
ateA2theA2fraudA2risk
3.A2MustA2assessA2controlA2riskA2toA2determineA2theA2nature,A2timingA2andA2extentA2ofA2su
bstantiveA2proceduresA2toA2beA2performed

3A2factorsA2ofA2theA2relationshipA2betweenA2internalA2controlA2relianceA2andA2auditA2proce
duresA2-A2Ans--1.A2Nature
2.A2Timing
3.A2Extent

WhatA2doesA2COSOA2standA2forA2andA2whatA2doesA2itA2do?A2-A2Ans--
CommitteeA2ofA2SponsoringA2Organizations.A2ItA2isA2theA2organizationA2thatA2establishedA
2theA2commonA2internalA2controlA2frameworkA2thatA2mostA2businessesA2subscribeA2to.


3A2ObjectivesA2ofA2InternalA2ControlA2-A2Ans--1.A2Operations
2.A2Reporting
3.A2Compliance

5A2componentsA2ofA2internalA2controlA2-A2Ans--1.A2ControlA2Environment
2.A2RiskA2Assessment
3.A2ControlA2Activities

, 4.A2InformationA2andA2Communication
5.A2Monitoring

ControlA2EnvironmentA2-A2Ans--
TheA2overallA2attitudeA2ofA2managementA2andA2employeesA2aboutA2theA2importanceA2ofA2
controls.

AuditA2CommitteeA2-A2Ans--3-6A2"outside"A2membersA2ofA2Board.
ProvidesA2aA2bufferA2betweenA2theA2auditA2teamA2andA2operatingA2management.
MembersA2mustA2beA2"financiallyA2literate."
OneA2"financialA2expert"

AuditA2CommitteeA2ResponsibilitiesA2-A2Ans--1.A2AppointmentA2ofA2theA2auditorA2
2.A2CompensationA2ofA2theA2auditorA2
3.A2OversightA2ofA2theA2auditorA2
a.A2resolveA2disagreementsA2betweenA2managementA2andA2theA2auditorA2
b.A2theA2auditorA2reportsA2directlyA2toA2theA2auditA2committee

RiskA2AssessmentA2PrinciplesA2-A2Ans--1.A2SpecifyA2Objectives
2.A2IdentifyA2andA2AnalyzeA2Risks
3.A2ConsiderA2PotentialA2forA2Fraud
4.A2IdentifyA2andA2AssessA2Changes

COSOA2ControlA2ActivitiesA2-A2Ans--
ProperA2authorizationA2ofA2transactionsA2andA2activities
SegregationA2ofA2duties
ProjectA2developmentA2andA2acquisitionA2controls
DesignA2andA2useA2ofA2documentsA2andA2records
SafeguardingA2assets,A2records,A2andA2data
IndependentA2checksA2onA2performance

RelevantA2Assertion:A2OccurrenceA2ExampleA2-A2Ans--
AllA2salesA2invoicesA2areA2matchedA2toA2shippingA2documentsA2beforeA2recordingA2themA2
inA2theA2generalA2ledger.

RelevantA2Assertion:A2ValuationA2ExampleA2-A2Ans--
TheA2creditA2departmentA2performsA2aA2detailedA2creditA2checkA2forA2allA2newA2customers
.

RelevantA2Assertion:A2CompletenessA2ExampleA2-A2Ans--
AllA2shippingA2documentsA2areA2matchedA2toA2salesA2invoicesA2thatA2haveA2beenA2record
edA2inA2theA2generalA2ledger.

FourA2TypesA2ofA2functionalA2responsibilitiesA2shouldA2beA2performedA2byA2differentA2dep
artmentsA2-A2Ans---AuthorizationA2toA2executeA2transactions
-RecordingA2transactions