Question

Management asserts that entity-level controls are designed adequately and operating effectively to reduce to an acceptably low level the risk of managers and employees embellishing performance results or misusing company resources.

What specific procedures would you as the auditor use to obtain audit evidence about the design and implementation of the client’s internal control system? What key controls would you expect to find in place if management’s assertion is true? What are the inherent limitations of internal control?

Answer 1

1. Specific Procedures performed to obtain Audit evidence are as follows:

In order to ensure that the Internal controls are in place to combatt the risk within the organsiation management takes an effort to implement thoses controls.

Auditor is in place to evaluate the efficieny and effectiveness of those controls.

In order to evaluate the same following procedures is followed Organisational Understanding through SOPs, Chnage Management of the process as if , Walkthrough of the process, Testing of the process, Delvering the control is efficetive or Ineffective. Providing recommendations.

2. Key Controls : Management Assertions helps auditor in two ways to determine that the Fianancial Statemnets present fairly or not as same as matches with the evidence gathered by the auditors and secondly considering the risk of material misstatement through entitys understanding and its internal control.

key Controls are: Transaction of Events , Accounting Balance and Presentation & disclosures.

Transaction of Events Supports :  

- Occurance

- Completenss

- Cut off

Accounting Balance Supports:

- Existence

- RIght and Obligations

- Valuation and Allocation

Presentation and Allocation Supports:

- Completeness

- Accuracy

- Cut off.

3. Inherent Limitations :

- Human Error

- Repetition of controls : ( Collusion) Oversight by numerous people over the flow of control at single point may colluide to circumvent the control process.

- Management override

- Lack of Proper segregation of Duties.