Ken, an audit manager assigned to the audit of Parkside LLC is discussing internal control with a new staff associate, Sandra. Sandra is keen to learn more about internal control and how effective it may or may not be. Which of the following responses from Ken would best help Sandra? So long as a client's system of internal control is designed properly and approved by the external auditors, then there is no concern of any misstatements in the financial statements. Overall responsibility of a client's system of internal control falls upon the internal audit function. If the client does not have an internal audit function, responsibility falls upon the audit committee. The audit of internal control is typically very expensive during the first year's integrated audit, but the cost is significantly less in future audits as the external auditor only performs minimal checks thereafter. Even with a robust system of internal control, there is still the possibility of misstatements due to management collusion or ineffective controls. After an initial meeting with the client's senior management, an auditor assigned to the audit of Bookbinder LLC is attempting to understand the entity-level controls enacted by the organization. Which of the following would represent the most appropriate way for the auditor to achieve this understanding? The auditor should request the internal audit function conduct an audit of entity-level controls, and report the findings back to the external auditor. The auditor should consider reviewing company policies and procedures as well as minutes of board of director meetings. The auditor should consider conducting a walkthrough of the client's entity-level controls to ensure they are operating effectively. The auditor should attempt to obtain written assurances from senior management that all entity-level controls are operating effectively. Laney and Derek are discussing the audit of Parker Enterprises, which is soon to begin. Laney would like to get an idea of the first steps they should take as part of the audit. Derek, a more experienced auditor advises Laney that one of the first things they will do is Neil, an audit manager at Bullock CPAs is currently working on the audit of Sandringham Enterprises, LLC. Neil is examining a sample of customers to check their payment history and credit limits. What type of control is Neil examining? Neil is examining a preventive control, which should stop customers who have exceeded their credit limits from purchasing more goods. Neil is checking a classification control which ensures that customers who have exceeded their credit limits are classified separately for further follow up. Neil is examining an accuracy control to determine if payments were made on time and if customer credit limits have been exceeded. Neil is examining a detective control designed to identify customers who have exceeded their credit limits
