Question

1.Explain the importance of internal controls to auditors and management.

2.How do auditors gain an understanding of an entity's internal control?

Answer 1

Solution. 1. An organization operating in global times need to manage financial statements along with social accounting to sustain. An organization to meet its set objective efficiently and effectively needs to practice internal control which encompasses the process of ensuring financial information reliability along with safeguarding assets for auditors to provide fraud free information to establish audit opinion.

Establishing internal control is important for management to deliver error free statements and data. It reflects on organization's policy management and control. It provides users with organization's efficiency and reliability in its operations.

2. Auditors to conclude opinion needs to first establish internal control reliability through observation and examining of datas provided to gain complete understanding of internal control. Auditors may check past audit reports and derivate changes occurred if any in control environment. In order to release opinion, relevant data to be examined along with material misstatement to prevent fraudulent activities in an organization during an accounting period which faciliates the process of decision making for both external and internal users.