ACCT 4301 TTU Exam 2 Study Questions and Correct Answers

(6-1) What are management's incentives for establishing and maintaining strong internal control? Internal controls provide a way to accomplish management's agency responsibilities. Management needs a control system that generates reliable information for decision making. (6-1) What are the auditor's main concerns with internal control? The importance of internal control to the auditor is controls that are relevant to the entity's ability to initiate, record, process, and report financial data consistent with management's assertions. The auditor needs assurances about the reliability of the data generated within the entity's internal control system in terms of how well the assets and records of the entity are safeguarded. (6-2) What are the potential benefits to an entity's internal control from information technology? The potential benefits to a company's internal controls from information technology include: - consistent application of predefined business rules and performance of complex calculations in processing large volumes of transactions or data. - Enhancement of the timeliness, availability, and accuracy of information - Additional analysis of information - Enhancing the ability to monitor the performance of the entity's activities and it's policies and procedures (6-2) What are the potential risks to an entity's internal control from information technology? The risks to a company's internal controls from information technology include: - Reliance on systems/programs that inaccurately process data, process inaccurate data, or both - Unauthorized access to data that may result in destruction of data or improper changes to data, including the recording of unauthorized or nonexistent transactions or inaccurate recording of transactions - Unauthorized changes to data in master files - Unauthorized changes to systems/programs - Failure to make necessary changes to systems/programs - Inappropriate manual intervention - Potential loss of data