Section 5 Internal Control over Financial Reporting Essay

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internal control Qver Financial Reporting

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.

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 Prior to Sarbanes- Oxley and PCAOB Auditing Standard No. 2 (superseded by Auditing Standard No. 5), the evaluation of CE rarely received the

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