Internal control is important to an organization. Why do you think external auditors need to understand...

Internal control is important to an organization. Why do you think external auditors need to understand their client's internal control over financial reporting?

Expert Solution

An External auditor is appointed inorder to give a true and fair view on the financial statement. That is, they are to give opinion by reporting to users of financial statement that the financial statements are free from material misstatement due to fraud or error.

- It is of vital importance to understand the internal control in an organization because this can be taken as a benchmark to develop the appropriate audit procedures.

- The extend of substantive procedures depends on the outcome of test of controls performed by the external auditors. If the auditors has sufficeint and appropriate evidence that the internal control in an organization is strong, then the scope of substative procedures can be minimised.

- Therefore, it is very important to understand the client's internal control over financial reporting by an external auditor.

ekkarill92 answered 2 years ago

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