GAAS requires that auditors gain an understanding of a client’s internal control system. How does the...

GAAS requires that auditors gain an understanding of a client’s internal control system. How does the auditor incorporate this knowledge into the audit plan? Is an auditor required to test internal controls on every audit? Explain.

Expert Solution

Internal control is the process designed, implemented and maintained by those charged with governace and management and other personnel to provide reasonable assurance avbout the achievement of an entity's objectives with regard to relaibility of financial reporting ,effectiveness and efficiency of operations, safeguarding of assets and compliance with applicable laws and regulations.

The Auditor should identify and assess the risk of material mis statements whether due to fraud or error ans he should understand the entity and its enviornment including the entity's internal control system.Thereafter Auditor can design responses to the assessed risk . The auditor shall evaulate the design of controls and determine whether they have been implemented or not.After obtaining the understanding of control , he shall assess the risk of material mis statement and design furthur audit procedures.

In every audit, you must get at least a preliminary understanding of the client’s internal controls that affect each business and financial process. But after gaining that preliminary understanding, you may decide not to conduct a full audit of internal controls. You may decide, instead, that you need to test every transaction that occurred during the year under audit.

The timing of tests of controls relates to when the evidence about the operating effectiveness of the controls is obtained and the period of time to which it applies.The auditor must obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance. When the auditor obtains evidence about the operating effectiveness of controls as of or through an interim date, he or she should determine what additional evidence is necessary concerning the operation of the controls for the remaining period of reliance.

ekkarill92 answered 1 year ago

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