Question

Because of the unique characteristics of small business, the AICPA recommends that the most efficient and effective audit strategy for small business clients is to assess control risk at the maximum level and take primarily a substantive approach to the audit engagement.

Do you agree? How does this approach affect the audit?

Answer 1

It is rightly said and recommended for the small businesses to have maximum internal control at the maximum level of the business operation. Thus, through such pro-active actions, the small business clients can have most efficient and effective audit. The auditor without pay attention on the thorough internal checks and control and can satisfy with sample testing or checking of the reports and statements and data provided by the accounts and internal audit department and can perform audits through the substantive approach or vouching approach.

When the internal audit and control risk are minimized for the external auditors, then the external auditors do not have to engage themselves in checking of internal records and concentrate on the vital issues of audits. For example, controls on financial reporting, cash collection, customers payments and the different procurements etc. are being checks through substantive tests or transactions or vouching rather going for thorough checking.

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