Jurgen Skembi Homework5 Internal Control Audit Standards a. For what purposes should an auditors’ understanding of the internal control components be used in planning an audit? An auditors’ understanding of the internal control components should be used for 3 reasons: a) To identify the potential misstatement that might occurs b) To identify the factors that affect the risk of material misstatement c) To influence the design of substantive procedures b. What is required for an audit team to assess control risk below the maximum level? It is required for an audit team to assess control risk below the maximum level to identify specific control procedures and policies relevant to specific assertions that …show more content…
If the scope limitation is due to inability to gather sufficient evidence regarding to potential material weaknesses, it is necessary to include the definition of the material weakness as well. d) Modify the opinion paragraph, by stating that “the scope of our work was insufficient to enable us to express an opinion, so we don’t express an opinion”. c. Other auditors have audited a significant component of the company, including internal control over financial reporting relating to the component. If the auditors conclude that the internal control over financial reporting is not maintained effectively by management, auditors should express an unqualified opinion on management’s assessment of internal control over financial reporting. On the other hand, an adverse opinion should be issued on the effectiveness of the company’s internal control over financial reporting. ▪ The modification that are needed to be made: a) Modification of introductory paragraph, stating that the management’s assessment didn’t maintain an effective internal control over financial reporting. b) Adding a paragraph that defines any material weakness identified during the audit. c) Modification of opinion paragraph, stating that because of the effect of the material weaknesses captured, the company has not maintained an effective internal control over financial reporting. d. The auditors believe that the entity’s management has
Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting 12.1 EyeMax Corporation . . Evaluation of Audit Differences
Stage 2: Test of internal controls - By testing the effectiveness of the internal controls the auditor can determine the control risk that lies within the company. The audit team can perform tests of controls by making inquiries of appropriate client personnel, examining documents, records, and reports maintained by Smackey, observing control-related activities such as the one done for the inventory procedures for returned Best Boy Gourmet dog food, and re-perform the client procedures.
Compare the primary auditor objectives in auditing historical financial statements to auditing internal controls over financial reporting. Identify at least two (2) objectives that are the most significant in reducing the risk of reporting errors or misstatements in financial statements. Provide a rationale for your response.
Having internal controls is one thing, but how the company evaluates that control is a matter all by itself. Being an independent auditor, it is our job to understand an entity and
How management identifies those transactions, events and conditions that may give rise to the need for accounting estimates to be recognized or disclosed in the financial statements. And the auditor shall make inquiries of management regarding changes in circumstances that may give risk or new or the need to revise existing, accounting
To conduct the audit, the firm must acquire sufficient understanding of the internal control processes to help determine the nature and timing of the audit. However, the audit is not designed to identify deficiencies in internal control or provide assurance. The firm will make the audit committee aware of any significant deficiencies that come to Anderson, Olds, and Watershed’s attention during the audit.
Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.
Auditors should always evaluate the design and test the operating effectiveness of a company’s internal control. The key procedures of the evaluation of design are fulfilled by inquires, observations, and inspections. The same procedures can be used to test the operating effectiveness as well.
During the performance of this integrated audit, require numerous judgments about the internal control and overall financial reporting and how well it addresses risks of material misstatements within the financial statements (AICPA, 2014). After re-evaluating the previous errors found from the previous audit, the audit team found the corrective actions to be appropriate and justified in elimination of human error by implementing additional checks and balances within the manual process. No additional misstatements have been found and all internal controls off the financial reporting seem appropriate and just.
d. “The auditor's reliance on substantive tests to achieve an audit objective related to a particular assertion may be derived from tests of details, from analytical procedures, or from a combination of both. The decision about which procedure or procedures to use to achieve a particular audit objective is based on the auditor's judgment on the expected effectiveness and efficiency of the available procedures. For significant risks of material misstatement, it is unlikely that audit evidence obtained from substantive analytical procedures alone will be sufficient (PCAOB, AS 2305.09).”
When testing of internal controls indicates that there may be significant deficiencies, then the auditor
The auditor must obtain an understanding of the entity and its environment, including internal controls, so that they can identify and assess the risks of material misstatement on financial statements due to fraud or error and design and perform further audit procedures.
3. What potential implications arise for the accounting firm if they issue an unqualified report without the going-concern explanatory paragraph?
An audit is based when management prepares the financial statements, maintain internal control over financial reporting, and provide relevant information and access to the auditor.
The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.