Question

1. The Sarbanes-Oxley Act requires:

A. all public companies to issue an internal control report.

B. all public companies to define adequate internal controls.

C. the auditor of public companies to design effective ICFR.

D. provides for all three of the above.

2. When planning an audit, the auditor's assessed level of control risk is:

A. determined by using actuarial tables.

B. calculated by using the audit risk model.

C. an economic issue, trading off the costs of testing controls against the cost of testing balances.

D. calculated by using the formulas provided in the AICPA's auditing standards.

Answer 1

The correct options are:

1. Option A. all public companies to issue an internal control report.

2.Option B. calculated by using the audit risk model.

Workings

1. The Sarbanes-Oxley Act known as SOX Act deals with interal controls which exist within the company. As per the SOX Act all public companies to issue an internal control report together with their financial statements. The management of companies is responsible for designing adequate internal controls so that the financial reporting happens in a fair manner The auditor is responsible for evaluting these internal control and state his observations on the same.

2. When planning an audit, the auditor's assessed level of control risk is determined by using audit risk model. This model helps in assessing quantifies the risk which is related to an audit and how these risks can be mitigated or reduced.

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