Unformatted text preview: l transactions
that occurred over the past year (or earlier). If the auditor designs procedures
to test whether the transactions were captured and handled properly, the auditor can obtain indirect information about whether the ending account balances
are likely to be fairly stated. This information is clearly one step removed from
the ending account balances themselves. But we can even back up one more
step. If the auditor designs procedures to test whether the entity’s internal control over ﬁnancial transactions is effective, the auditor can obtain additional
indirect information regarding whether the account balances are fairly stated.
Take a moment to think through the logic in this last step: If controls are effective, then the transactions will probably be captured and summarized properly,
which means in turn that the account balances are likely to be free of material
misstatement. Thus, information about internal control is even more indirect
than information about transactions, but it is useful information nonetheless! In
fact, while it is indirect, evidence about internal control is often a relativel...
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.