Chapter 12, Problem 1RQ

To determine

Identify the responsibility of an auditor for obtaining the understanding of internal control. Also, differentiate between the responsibility of an auditor for public and non public company.

Explanation of Solution

The auditor is responsible for obtaining understanding about internal of an organization before conducting audit procedures. To obtain an understanding about the client’s internal control following are the responsibilities performed by the auditor:

• The auditor procures and documents the understanding of the internal control design and its implementation within the organization.
• The auditor assesses the control risk which the organization may possess. The auditor assesses the control risk to decide about the control testing and audit design.
• The auditor design, perform and evaluate the test of control.
• Lastly, the auditor takes decisions regarding the planned detection risk and substantive testing.

The criteria of understanding the internal control for public and non public company were similar. The extent of understanding in the large public or non-public organization depends on the complexity of the system and the extent of internal control activities performed by the organization.