Audit unit 4 assignment.docx - 7-29 Adherence to generally accepted auditing standards requires among other things a proper understanding of the

Audit unit 4 assignment.docx - 7-29 Adherence to generally...

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7-29 Adherence to generally accepted auditing standards requires, among other things, a proper understanding of the existing internal control. The most common approaches to documenting the understanding of internal control include the use of a questionnaire, preparation of a written narrative, preparation of a flowchart, or a combination of these methods. Required: a. Discuss the advantages to CPAs of documenting internal control by using: (1) An internal control questionnaire. An internal control questionnaire- There are several advantages of an internal control questionnaire. One advantage is to reveal weakness in internal control, another is how easy the questionnaire is to fill out. Most of the internal control questionnaires are designed so that a “no” answer to a question indicates a weakness in internal controls, and this requires auditors to distinguish the types of possible misstatements. These questionnaires do not typically contain questions that are not pertinent for small companies (2) A written narrative. A written narrative-A written narrative of internal control are documents that explain the flow of transaction cycles, which classifies the different responsibilities employees perform. Written narrative details the documents prepared as well as the records upheld (3) A flowchart. Flow chart-CPA firms deem the flowchart to be more effective than either an internal control questionnaire or a written narrative, by describing in more detail the client’s accounting system. There is also a less likelihood of misunderstanding of unclear statements or missing areas. Those experienced in reading flowchart, know that they express not only a clear picture of the system but also the character and sequence of procedures, separation of duties, the basis, and circulations of documents. For each main transaction cycle a separate flowchart is made. Each of the flowcharts are separated into vertical columns signifying each of the departments or employees participating in processing the transactions. The columns indicate procedure responsibilities within the departments, documents are revealed by reviewing the associated flowcharting symbol on the bottom of the corresponding departments heading.
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