Auditing Principles & Procedures Flashcards

Under the COSO internal control framework, which component directly addresses an organization's ethical values and the oversight responsibility of management?

Answer: Control Environment

The Control Environment is the foundation of COSO and encompasses the tone at the top, ethical values, and management's commitment to competence and oversight.

A procurement auditor is conducting a risk-based audit. Which area should receive the highest audit priority?

Answer: High-dollar, complex contracts in areas with weak controls

Risk-based auditing directs resources toward high-dollar, complex areas with weak controls because these represent the greatest potential for material error or fraud.

Which audit procedure is specifically designed to detect fictitious vendors in the purchasing system?

Answer: Comparing vendor master file addresses to employee addresses

Matching vendor addresses to employee addresses is a key test for shell vendor fraud, where employees create fictitious suppliers using their own or related addresses.

What is the meaning of 'segregation of duties' in the context of a purchasing cycle audit?

Answer: Ensuring that no single person controls all phases of a transaction

Segregation of duties prevents fraud and error by ensuring authorization, custody, and record-keeping functions are performed by different individuals.

An audit of contract management reveals that a vendor's performance has not been formally evaluated in over two years. Which risk does this oversight most directly create?

Answer: Underperforming vendors may continue receiving contract renewals

Without regular performance evaluations, poor-performing vendors may go undetected and continue being awarded renewals, wasting organizational resources.

Which term describes the auditor's responsibility to maintain an unbiased attitude and avoid conflicts of interest throughout an audit engagement?

Answer: Independence and objectivity

Independence and objectivity require that auditors maintain an impartial mental attitude and avoid conflicts of interest that could bias their judgment or conclusions.

During a follow-up audit, an auditor finds that a previously reported high-risk finding has not been corrected. What is the auditor's most appropriate next step?

Answer: Escalate the unresolved finding to senior management or the audit committee

Persistent unresolved high-risk findings must be escalated to senior management or the audit committee to ensure accountability and timely corrective action.