ACC 406 Exam|2025 Revised Update | 100%
Correct Complete Solutions
7. Section 202 of the SOX act requires
that public companies issue a report accepting responsibility for establishing and maintaining
adequate ICFR and to assess its effectivness
Who is responsible for implementing an effective internal control system?
the directors and management
Control deficiency
design or operation of a control does not allow management or employees to prevent or detect
misstatements in a timely manner
Design deficiency
1. control necessary to meet the objective is missing
2. existing control is not properly designed, so even if it works, the objective won't be met
Operation deficiency
When a properly designed control does not operate as designed, or when the person performing
the control does not possess the necessary authority or competence to perform the control
effectively.
Material weakness
deficiency or combo of deficiencies such that there is reasonable possibility that a material
misstatement of the of the financial statements will not be prevented or detected in a timely basis
, Significant deficiency
control deficiency less severe than a material weakness but important enough to merit attention
by those overseeing financial reporting
What are the two dimensions of control deficiencies?
Likelihood and Magnitude
Likelihood
reasonable possibility of an event
Remote / more than remote likelihood
Remote = not a control deficiency
More than remote = either a deficiency, significant deficiency, or material weakness (depending
on the magntiude_
Magnitude
the magnitude of financial misstatement that might result from a control deficiency
Best way to identify potential source of misstatements
walkthroughs - trace a transaction from origin through the entity's processes and info system til
it's reflected in the financial reports
The assessment of the significance of a control deficiency depends on _______
the potential for a misstatements, not on whether it has actually occurred
Risk Factors that affect likelihood
Correct Complete Solutions
7. Section 202 of the SOX act requires
that public companies issue a report accepting responsibility for establishing and maintaining
adequate ICFR and to assess its effectivness
Who is responsible for implementing an effective internal control system?
the directors and management
Control deficiency
design or operation of a control does not allow management or employees to prevent or detect
misstatements in a timely manner
Design deficiency
1. control necessary to meet the objective is missing
2. existing control is not properly designed, so even if it works, the objective won't be met
Operation deficiency
When a properly designed control does not operate as designed, or when the person performing
the control does not possess the necessary authority or competence to perform the control
effectively.
Material weakness
deficiency or combo of deficiencies such that there is reasonable possibility that a material
misstatement of the of the financial statements will not be prevented or detected in a timely basis
, Significant deficiency
control deficiency less severe than a material weakness but important enough to merit attention
by those overseeing financial reporting
What are the two dimensions of control deficiencies?
Likelihood and Magnitude
Likelihood
reasonable possibility of an event
Remote / more than remote likelihood
Remote = not a control deficiency
More than remote = either a deficiency, significant deficiency, or material weakness (depending
on the magntiude_
Magnitude
the magnitude of financial misstatement that might result from a control deficiency
Best way to identify potential source of misstatements
walkthroughs - trace a transaction from origin through the entity's processes and info system til
it's reflected in the financial reports
The assessment of the significance of a control deficiency depends on _______
the potential for a misstatements, not on whether it has actually occurred
Risk Factors that affect likelihood
