ACT 4497 Lecture ch10

ACT 4497 Lecture ch10 - Assurance Services and the...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Assurance Services and the Integrity of th Modern Auditing: Modern Auditing: Financial Reporting, 8 Edition California Polytechnic State University at San Luis Obispo William C. Boynton Portland State University Raymond N. Johnson Chapter 10 – Understanding Internal Control Fundamental Concepts of Internal Fundamental Concepts of Internal Controls • Process integrated with an entity’s infrastructure • People implement internal control • Can only provide reasonable assurance • Achieve objectives in financial reporting, compliance, and operations Limitations of Internal Control Limitations of Internal Control • Mistakes in Judgment • Breakdowns • Collusion • Management Override • Cost versus Benefits Roles and Responsibilities Roles and Responsibilities • Management • Board of Directors and Audit Committee • Internal Auditors Roles and Responsibilities (cont.) Roles and Responsibilities (cont.) • Other Entity Personnel • Independent Auditors • Other External Parties Components of Internal Control Components of Internal Control Control Environment Control Environment • Integrity and Ethical Values • Commitment to Competence • Board of Directors and Audit Committee • Management’s Philosophy and Operating Style Control Environment (cont.) Control Environment (cont.) • Organizational Structure • Assignment of Authority and Responsibility • Human Resource Policies and Practices Risk Assessment Process Risk Assessment Process Information and Communication Information and Communication • Information – – – – Transactions Audit Trail or Transaction Trail Documents Records • Communication Control Activities Control Activities • Authorization Controls • Segregation of Duties – Transaction authorization – Custody of assets – Recorded accountability in accounting records Segregation of Duties Segregation of Duties Control Activities (cont.) Control Activities (cont.) • Information Processing Controls – General Controls – Computer Application Controls – Controls over the Financial Reporting Process General Controls General Controls • Organization and Operation Controls • Systems Development and Documentation Controls • Hardware and Systems Software Controls • Access Controls • Data and Procedural Controls Computer Application Controls Computer Application Controls • Input Controls • Processing Controls • Output Controls Controls over the Financial Reporting Controls over the Financial Reporting Process Control Activities (cont.) Control Activities (cont.) • Physical Controls • Performance Reviews • Controls over Management Discretion in Financial Reporting Control Activities (cont.) Control Activities (cont.) • Monitoring – Ongoing monitoring programs – Separate evaluations – Element of reporting deficiencies to the audit committee Antifraud Programs and Controls Antifraud Programs and Controls Understanding Internal Control Understanding Internal Control Must perform procedures to: • Understand design of policies and procedures • Determine whether the policies and procedures are operating Understanding Internal Control Understanding Internal Control Auditor uses the understanding to: • Identify types of potential misstatements • Understand factors affecting risk of material misstatement • Design further audit procedures Effects of Preliminary Audit Strategies Effects of Preliminary Audit Strategies • Control Environment • Risk Assessment • Information and Communication • Control Activities • Monitoring Procedures to Obtain an Understanding Procedures to Obtain an Understanding • Review previous experience with the client • Inquire management, supervisory, and staff personnel • Inspect documents and records • Observe activities and operations • Trace transactions through system Documenting the Understanding Documenting the Understanding • Questionnaires • Flowcharts • Decision Tables • Narrative Memoranda Questionnaire Questionnaire Decision Table Decision Table Narrative Memoranda Narrative Memoranda ...
View Full Document

  • Spring '11
  • LEWIS
  • control activities, Portland State University, Internal  Fundamental Concepts of Internal  Controls, Communication Information and Communication

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern