Section 5 Internal Control over Financial Reporting Essay

23602 Words May 4th, 2013 95 Pages
internal control Qver Financial Reporting
CASES INCLUDED iN THIS SECTiON

1. Simply Steam, Co. 155
Evaluation of Internal Control Environment

2. Easy Clean, Co. 155
Evaluation of Internal Control Environment

3. Red Bluff Inn & Café 165
Establishing Effective Internal Control in a Small Business
4. St. James Clothiers 169
Evaluation of Manual and IT-Based Sales Accounting System Risks
5. Collins Harp Enterprises 177
Recommending IT Systems Development Controls

6. Sarbox Scooter, Inc. 185
Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting
7. Société Générale 195
How a Low-Risk Trading Area Caused a $7.2 Billion Loss
case5.!-2 Easy
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■ EC/SS is a privately-held company and has never been audited.
■ The audit manager recently conducted an interview with management in order to obtain an understanding of EC/SS’s control environment. This interview dialogue is what students rely on to assess EC/SS’s control environment.
■ EC/SS has grown rapidly since it began operations less than six years ago.
■ The case indicates that the instructor will notify the students whether to make all the component assessments or only the overall control environment assessment.

USE OF CASE[1]
The rich content of the EC/SS case can be used to promote interesting discussions of a wide variety of topics relating to the assessment of a client’s control environment. The EC/SS exercise actively involves students in issues that call for professional judgment. This is a crucial part of their audit education that is not often covered by traditional methods. Involving students in this active learning experience should help develop their competence, heighten their sense ofprofessional skepticism and enhance their ability to exercise professional judgment. This case exercise provides an opportunity
to practice making difficult judgments and to critically evaluate the issues surrounding professional judgment.
The exercise involves the evaluation of the control environment (CE). Prior to Sarbanes- Oxley and PCAOB Auditing Standard No. 2 (superseded by Auditing Standard No. 5), the evaluation of CE rarely received the…