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CHAPTER ?

INTERNAL CONTROL AND CONTROL RISK

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''sr.i Questionsn Exercises and Cases

QUESTIONS

7.2 lntroduction
7-1- What are the first two steps in the planning procedures?

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lnternal Control Defined
7-2 Define internal control. Discuss the fundamental concepts in the definitionl process,
people, reasonable assurance, and objectives.
7-3 Describe the four objectives of internal control.
7-4 Do corporations believe fraud to be a problem accorcling to KPMG fraud survey reports?
Explain.
7-5 Why is the auditor interested primarily in controls that relate to reliability of financia
reporting, accounting and internal control systems?

7.4 The lmportance of Internal Control


7-6 What importance would internal controls have for an audit firm?

7.5 lT Risk and Controls


7-7 controls may generally be grouped into two types. Define these two.
lT
7-8 What things might an auditor consider when evaluating the information system of an
entitv?

7.6 Components of lnternal Control


7-9 What are the five interrelated components of internal control? Brieflv discuss them.

7.7 Control Environment


7-10 Define control environment. Why is it important to an entity?
7-11- Can evaluation of the control environment be a key element in determiningthe nature of
the audit work? Why or why not?
7-12 What is meant bv 'tone at the too'?

7.8 Risk Assessment


7-13 What is the difference between management risk assessment and auditor risk assessment?
7-14 Name and discuss one technique that has been developed to identify risk.

?.9 Information Systems, Communication and Related Business Processes


7-15 What is the accounting system designed to do? What should be documented about an
accounting system as part ofthe procedures to understand the internal control system?

7.10 Control Activities (Control Procedures)


7-16 Into whatfive categories do control activities fall?
7-17 Discuss the Baring case and the Daiwa Bank case. How could similar problems be pre-
vented in the future? What is your opinion of these cases?

7.X2 Hard and Soft Control


7-18 Muel Kaptein distinguishes seven social-psychological factors which influence people's
behaviour within organisations. Discuss.

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