LSU - ACCT 3222 - Chapter 6 – Questions – With Complete Solutions

Internal Control (IC) correct answer: - Management has the responsibility to design and maintain a system of IC that provides reasonable assurance that assets and records are properly safeguarded, and that the entity's information system generates information that is reliable for decision making. - Important for auditors because the auditor needs assurance about how well the assets and records of the entity are safeguarded and about the reliability of the data generated by the information system. - Auditor uses risk assessment procedures to obtain an understanding of the entity's internal control, which helps the auditor identify key controls, recognize types of potential misstatements, and design tests of controls and substantive procedures. - Inverse relationship between the reliability of IC and the amount of substantive evidence required of the auditor. COSO Internal Control Definition correct answer: - A system of IC is designed and a carried out by an entity's board of directors, management, and other personnel to provide reasonable assurance about the achievement of the entity's objectives in the following categories: (1) reliability, timeliness, and transparency of internal and external, non financial and financial reporting, (2) effectiveness and efficiency of operations including the safeguarding of assets, and (3) compliance with applicable laws and regulations. - Purpose of IC Framework is to