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CHAPTER 13 REVIEW QUESTIONS AND EXERCISES Questions 1.What is meant by the control environment? What are the factors the auditor must evaluate to understand it? -Controlenvironment means the overall attitude, awareness and actions of directors and management regarding the internal control system and its importance in the entity. The auditor must evaluate the different factors such as: the function of the board of directors and its committees; the philosophy and operating style of management; the entity's organizational structure and methods of assigning authority and responsibility; and the control system of management. 2.What is the relationship among the five components of internal control? -They help ensure the organization to achieve its goals while avoiding complications along the way. They are crucial and important part of organization. 3. The separation of operational responsibility from record keeping is meant to prevent different types of misstatements than the separation of the custody of assets from accounting. Explain the difference in the purposes of these two types of separation of duties. -Separation of operational responsibility from record keeping is intended to reduce the likelihood of operational personnel biasing the results of their performance by incorrectly recording information while separation of the custody of assets from accounting for these assets is intended to prevent misappropriation of assets and also to prevent fraud. 4.For each of the following, give an example of a physical control the client can use to protect the asset or record: a.Petty cash- Entity could keep it in a fireproof safe. b.Cash received by retail clerks- should be registered to cash register to record cash received. What factors should an auditor consider when evaluating the control environment?Control environment factors include the following:. Integrity and ethical values.. Commitment to competence.. Board of directors or audit committee participation.. Management's philosophy and operating style.. Organizational structure.. Assignment of authority and responsibility.. Human resource policies and practices.. What are the factors included in the control environment?Control environment factors include:. Integrity and ethical values;. The commitment to competence;. Leadership philosophy and operating style;. The way management assigns authority and responsibility, and organizes and develops its people;. Policies and procedures.. What is meant by the control environment what are the factors that the auditor must evaluate to understand it Studocu?What is meant by the control environment? What are the factors the auditor must evaluate to understand it? -Control environment means the overall attitude, awareness and actions of directors and management regarding the internal control system and its importance in the entity.
Which of the following factors would an auditor most likely consider in evaluating the control environment for an audit client?Which of the following would an auditor most likely consider in evaluating the control environment of an audit client? Management's operating style. The control environment is the foundation for the other components of internal control. It provides discipline and structure and sets the tone of the organization.
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What are the factors the auditor must evaluate to understand control environment?
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