Question

If an auditor identifies an internal control weakness for an assertion, how does it affect the audit strategy? If the auditor identifies an internal control strength for an assertion, how does it affect the audit strategy?

Answer 1

Areas of internal control weakness are where the auditor typically performs additional substantive testing to quantify the (potential) material misstatement. The link between weaknesses in internal controls or observations that controls being tested did not operate as intended and the level of substantive procedures required to address these exceptions is revealed by the auditor, who uses this information to reassess the risk of a material misstatement. The auditor is also likely to perform substantive testing on year end balances, with larger sample sizes.

When the auditor identifies internal control strengths, the auditor will consider a reliance on controls approach for assertions influenced by these strengths, perform tests of controls to ensure that controls are strong, and then limit substantive testing. If internal controls are strong the auditor may also perform substantive tests with smaller sample sizes at an interim date.