Why are organizations concerned about their internal controls? How do the internal controls affect the audit planning process? Why do auditors need to consider the client's internal controls
All functions in an organisations are run by employees. These employees, though go through a series of checks before being enrolled, are subject to errors, frauds, omissions, carelessness etc. An internal control is needed to design systems / processes to involve more than one person in a transaction so that the risks are mitigated. These systems / processes have different people work on and check different aspects of a given transaction before, during and after the execution of the transaction. This helps in early identification of risks or elimination of risks in a transaction. Internal control is put in place to reduce the risks in transactions both within the company and with external entities. An effective internal control means that auditors can place more reliance on them and reduce the substantive testing. For example, if there is an authority matrix in place in the organisation, the risk of unauthorised transactions are less. A sample check may be done to check if the authority matrix is actually followed in spirit. If there is no authority matrix in the organisation, the number of transactions that needs to be checked for unauthorised transactions will be more as there is no internal control to mitigate the risk within the organisation. Testing of internal controls is less time consuming for the auditors than checking individual transactions. The auditors will budget for less resources if the organisation follows strong internal controls for all the functions. In the same way, the auditors have to budget for more resources in functions where the internal controls are weak and cannot be relied upon. Auditors have to consider internal controls in the organisation to focus on exceptions and transactions where the internal controls may have been breached.
Why are organizations concerned about their internal controls? How do the internal controls affect the audit...
Discussion Topic: When performing an audit, auditors are especially concerned about engagement risk. For this reason, they perform main activities to reduce engagement risks. Further, the auditing standards require auditors to understand the client's business, and its environments, and its internal controls when planning the audit so that they could better plan the nature, timing, and extent of the audit. Required: 1. Discuss why the auditor would be concerned about engagement risk and identify two or more activities the auditors...
Question 5 (20 marks) The following questions deal with the topics of internal controls and audit strategies. Required: (a) Select and justify the audit strategy you would choose in each of the following situations. Comment on whether you would perform “tests of controls” under the strategy you have chosen. (i) The internal control component known as the “foundation” of internal controls is not satisfactory. (ii) Management has designed sufficient control activities and has hired an internal auditor. The other components...
1. Explain the what is meant by internal controls. 2. Explain the process the audit team uses to assess control risk; understand its impact on the risk of material misstatement; and ultimately know how it affects the nature, timing, and extent of further audit procedures to be performed on the audit. 3. Describe additional responsibilities for management and auditors of public companies required by Sarbanes-Oxley and PCAOB auditing standard #2201. I need the answer in like 200 o 250 words....
Why are auditors interested in the controls associated with information technology? How do auditors use technology to conduct audits? Do most auditors use audit software when conducting an audit?
Why are auditors interested in the controls associate with information technology? How do auditors use technology to conduct audits? Do most auditors use audit software when conducting an audit?
If feedback controls are the most proactiv, then why do organizations need or use feedback controls explain and defend your answer
Most audit textbooks make reference to impact that internal audit has not only on systems but also on people, and stress the importance of understanding human behavior. Please discuss why auditors need to be knowledgeable about industrial psychology, communication skills and group theory and why auditors need to be skilled in dealing with people.
Which of the following statements about audit trails is true? a. Unlike most internal controls, the audit trail can be established and implemented by management b. An audit trail is a control that needs a description of only the source documents that are currently being used to record transactions c. SOX 404 requires the disclosure of audit trail procedures in the internal control report d. Audit trails are useful as detective controls because they help the user(s) uncover whether financial...
1. One of the initial steps in the audit process is to obtain a _______ that is used as an agreement between a CPA firm and a client for the conduct of an audit and related services. a)10-Q filed with the SEC b)Assessment report c)Audit and risk report d)Engagement letter 2. An auditor must consider both acceptable audit risk and inherent risk when planning an audit. These two types of risk affect the: a)Amount of evidence that needs to be...
Explain how internal control work done by auditors impacts the audit risk equation. Does control risk change if the auditors are providing an opinion over internal controls? How is detection risk impacted?