Question

Auditors are required to obtain a sufficient understanding of each component of a client’s internal control. This understanding is used to assess control risk and plan the audit of the client’s financial statements. Explain for what purposes an auditors’ understanding of the internal control components should be used in planning an audit.

Answer 1

Solution:

Auditors needs to understand each and every components of internal control which would be sufficient to plan audit by performing processes and procedures to understand the design of controls and implementation of it in understanding financial statements and determine whether it is placed in proper operation.

In this process of understanding the auditor needs to get knowledge about IT ( Information Technology) and manual procedures that are being followed by client which can affect controls relevant to audit.

The auditor than access the control risk for the relevant elements of financial statements such as transactions and accounts and performs substantive assessment for all relevant accounts and transactions and the disclosures made in financials.