Question

An auditor is required to obtain sufficient understanding of each component of an entity's internal control system to plan the audit of the entity's financial statements and to assess control risk for the assertions embodied in the account balance, transaction class, and disclosure components of the financial statements.

Required:

a. Define Internal Control.

b. For what purpose should an auditor's understanding of the internal control components be used in planning an audit?

c. What are an auditor's documentation requirements concerning an entity's internal control system and the assessed level of control risk?

Answer 1

A. control could be a method for reassuring accomplishment of associate organization's objectives in operational effectiveness and potency, reliable money news, and compliance with laws, laws and policies. A broad thought, control involves everything that controls risks to a company.

B. during this method, auditors got to understand the client’s money news system and therefore the significance of key or entity level controls. control plays a vital role within the interference and detection of fraud.This usually involves distinctive eventualities within which stealing or loss may occur and determinant if existing management procedures effectively manage the danger to an appropriate level.Controls are often evaluated and improved to form a business operation run a lot of effectively and with efficiency.

C. Audit documentation ought to be ready in decent detail to supply a transparent understanding of its purpose, source, and therefore the conclusions reached. Also, the documentation ought to be befittingly organized to supply a transparent link to the many findings or problems.

The auditor should document the procedures performed, proof obtained, and conclusions reached with relation to relevant budget assertions.

In determinant the character and extent of the documentation for a budget assertion, the auditor ought to think about the subsequent factors:

Nature of the auditing procedure;
Risk of fabric statement related to the assertion;
Significance of the proof obtained to the assertion being tested; and
Responsibility to document a conclusion not promptly calculable from the documentation of the procedures performed or proof obtained.
In addition to the documentation necessary to support the auditor's final conclusions, audit documentation should embody data the auditor has known with reference to vital findings or problems that's inconsistent with or contradicts the auditor's final conclusions.

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