38 Questions
What is the primary purpose of information processing controls?
To support effective implementation of an entity's information policies
What type of controls may rely on other controls, including other information processing controls or general IT controls?
Information processing controls
What is a qualitative inherent risk factor relating to the preparation of information required by the applicable financial reporting framework?
Complexity
What affects the susceptibility of assertions to misstatement?
Inherent risk factors
What is an example of a quantitative inherent risk factor?
Volume of transactions
What is significance in the context of auditing?
The relative importance of a matter
What type of controls may be embedded in IT applications?
Automated controls
What is an example of a circumstance that may affect the susceptibility of assertions to misstatement?
All of the above
What type of reports are prepared by management?
Quarterly management reports and interim financial statements
Where can information about the entity's financial performance be obtained?
Both from internal and external sources
What can be used to observe or inspect assets?
Both manual and automated tools and techniques
Why does the auditor consider information from other sources?
To identify and assess the risks of material misstatement
What can provide information and insights about the entity's business risks?
Information from both internal and external sources
What can indicate the integrity and ethical values of management?
Both the auditor's procedures and the behaviors and actions of management
What is an example of other relevant sources of information?
Both the auditor's procedures and the engagement partner's other engagements
What is an example of an automated tool or technique?
Both manual observation and remote observation tools
What should the auditor consider when determining the suitability of analytical procedures for given assertions?
Assessed risks of material misstatement and tests of details
What is the purpose of evaluating the reliability of data from which the auditor's expectation is developed?
To evaluate the comparability and relevance of information available
What should the auditor do with the expectation of recorded amounts or ratios?
Evaluate whether it is sufficiently precise to identify a misstatement
At what stage of the audit should the auditor design and perform analytical procedures?
Near the end of the audit
What is the purpose of analytical procedures near the end of the audit?
To assist in forming an overall conclusion
What should the auditor determine when evaluating the results of analytical procedures?
The amount of any difference acceptable without further investigation
What may inquiries directed towards IT personnel provide information about?
System changes, control failures, and IT-related risks
When making inquiries, auditors of public sector entities may obtain information from which additional sources?
Auditors involved in performance or other audits
Why are inquiries made of the internal audit function?
To understand the entity's system of internal control and environment
What additional responsibilities do auditors of public sector entities often have?
Assessing the effectiveness of internal control and compliance with laws
What do analytical procedures help identify?
Inconsistencies, unusual transactions, and trends indicating audit implications
What may unusual or unexpected relationships identified through analytical procedures assist the auditor in identifying?
Risks of material misstatement, especially risks of material misstatement due to fraud
Why are inquiries made of the IT personnel and internal audit function?
To understand the entity's environment, system of internal control, and IT-related risks
What is the primary purpose of performing analytical procedures as a risk assessment procedure?
To identify inconsistencies, unusual transactions, and trends indicating audit implications
What influences the auditor's determination of the amount of difference from the expectation that can be accepted without further investigation?
Materiality and desired level of assurance
What is the purpose of the conclusions drawn from the results of analytical procedures?
To corroborate conclusions formed during the audit of individual components
What happens when the results of analytical procedures identify a previously unrecognized risk of material misstatement?
All of the above
What is the relationship between the assessed risk and the amount of difference considered acceptable without investigation?
The amount of difference decreases as the assessed risk increases
What is the purpose of obtaining more persuasive audit evidence?
To achieve the desired level of assurance
What is the requirement of PSA 330 (Redrafted) when the auditor's assessment of risk increases?
To obtain more persuasive audit evidence
What is the purpose of the analytical procedures performed in accordance with paragraph 6?
To assist the auditor in drawing reasonable conclusions
What may the analytical procedures performed in accordance with paragraph 6 be similar to?
Risk assessment procedures
Study Notes
Information Processing Controls
- Information processing controls are procedures that support effective implementation of an entity's information policies.
- These controls may be automated (embedded in IT applications) or manual (e.g., input or output controls).
- They may rely on other controls, including other information processing controls or general IT controls.
Inherent Risk Factors
- Inherent risk factors are qualitative or quantitative and affect the susceptibility of assertions to misstatement.
- Qualitative inherent risk factors relating to the preparation of information required by the applicable financial reporting framework include:
- Complexity
- Subjectivity
- Change
- Uncertainty
- Susceptibility to misstatement due to management bias or other fraud risk factors
- Other inherent risk factors that affect susceptibility to misstatement of an assertion about a class of transactions, account balance, or disclosure may include:
- The quantitative or qualitative significance of the class of transactions, account balance, or disclosure
- The volume or lack of uniformity in the composition of the items to be processed through the class of transactions or account balance, or to be reflected in the disclosure
Significant Risk
- Significance can be described as the relative importance of a matter, and is judged by the auditor in the context in which the matter is being considered.
Auditing Public Sector Entities
- Auditors of public sector entities may obtain information from additional sources, such as from auditors involved in performance or other audits related to the entity.
- Inquiries of the internal audit function may assist the auditor in identifying risks of material misstatement and risks of material non-compliance with applicable laws and regulations.
Analytical Procedures
- Analytical procedures help identify inconsistencies, unusual transactions or events, and amounts, ratios, and trends that indicate matters that may have audit implications.
- Unusual or unexpected relationships that are identified may assist the auditor in identifying risks of material misstatement, especially risks of material misstatement due to fraud.
- Reports prepared by management, those charged with governance, and external sources may provide information and insights about the entity's business risks, control environment, and applicable financial reporting framework.
Information from Other Sources
- Information obtained from other sources may be relevant to the identification and assessment of the risks of material misstatement.
- Other relevant sources of information include:
- The auditor's procedures regarding acceptance or continuance of the client relationship or the audit engagement
- Other engagements performed for the entity by the engagement partner
Evaluating Analytical Procedures
- The auditor shall evaluate the reliability of data from which the auditor's expectation of recorded amounts or ratios is developed.
- The auditor shall determine the amount of any difference of recorded amounts from expected values that is acceptable without further investigation.
This quiz assesses your understanding of information processing controls and inherent risk factors in IT applications. Learn about the procedures that support effective implementation of information policies and how they relate to general IT controls.
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