Chapter 5 PP - Chapter 5 Internal Control Evaluation:...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

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

Unformatted text preview: Chapter 5 Internal Control Evaluation: Assessing Control Risk If everything seems under control, you're just not going fast enough.-- Mario Andretti, Race car driver 5-1 Responsibility for Internal Control Management responsibility Responsibility for establishing internal control Assess and report on internal control over financial reporting. Sarbanes-Oxley Act of 2002 (publicly traded companies) Auditor responsibility Assess RMMdetermine nature, timing and extent of substantive procedures Auditing Standard No. 5 ( AS 5 ): An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements 5-2 Managements Responsibility for Internal Control (Sarbanes-Oxley) Certify the companys financial statements (Section 302), Report on the companys internal control over financial reporting (Section 404). Must include: A statement that management is responsible . A statement identifying the framework . A statement providing management's assessment . 5-3 AS 5 : An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements Auditors must provide their opinion on the effectiveness of clients internal control. Not a separate engagement Integrated audit of internal control and financial statements Public Companies 5-4 Why Assess Control Risk? Determine nature, timing, and extent of audit procedures. Trade-off between testing of controls and substantive procedures. Control risk never zero . (Substantive procedures always required.) Note: Control testing required for public companies ( AS 5 ), but not for private companies and not-for-profit organizations. 5-5 Exhibit 5.2 Trade-off Between Tests of Controls and Substantive Testing 5-6 COSO C ommittee o f S ponsoring O rganizations of the National Commission of Fraudulent Financial Reporting (Treadway Commission) FEI, AAA, IIA, IMA, AICPA 5-7 Internal Control An Integrated Framework (COSO) Internal Control A process , effected by an entity's board of directors , management, and other personnel , designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (1) Reliability of financial reporting , (2) Compliance with applicable laws and regulations, (3) Effectiveness and efficiency of operations. 5-8 People!! Limitations of Internal Control Human error Collusion Management override Cost/benefit analysis Often a trade-off between the cost and the effectiveness of internal controls. Concept of reasonable assurance: the cost of an entitys internal control should not exceed the benefits expected to be derived....
View Full Document

Page1 / 48

Chapter 5 PP - Chapter 5 Internal Control Evaluation:...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online