Auditing SP 2008 CH 10 Outline

Auditing and Assurance Services (12th Edition)

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CH 10 INTERNAL CONTROL & CONTROL RISK Objectives of I/C 1. Reliability of Financial Reporting – mgt is responsible! 2. Efficiency & Effectiveness of Operations. 3. Compliance with Laws & Regulations Sec 4-4 requires mgt to report on effectiveness of I/C’s. See example of report on pg 292 figure 10-1. The auditor is responsible for understanding & testing the internal controls over financial reporting. Auditors must also emphasize controls over classes of transactions as opposed to account balances. Incorrect input = incorrect output. So, it’s better if we can rely on the I/C’s. The Control Environment – Summarized in Table 10-2, pg 303: Risk Assessment – mgt identifies and analysis risks relevant to the preparation of F/S’s in conformity with GAAP. Auditors assess risk to determine the amount of evidence it must gather! Control Activities – the policies & procedures that help ensure that necessary actions are
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Unformatted text preview: taken to address risks in the achievement of the entity’s objectives. 1. Separation of duties (pg 298) 2. Proper authorization of transactions & activities 3. Adequate documents & records 4. Physical control over assets and records 5. Independent checks on performance Information & Communication – initiate, record, process, and report the entity’s transactions and to maintain accountability over the related assets. Monitoring – ongoing assessment of the quality of I/C’s by management to determine that controls are operating as intended and modified if need be. Obtaining and Documenting I/C See pg 304 Figure 10-3 Fig 10-4 pg 306- Questionnaire Fig 10-5 pg 309 – Risk Matrix Table 10-3 pg 315 – Types of Tests of Controls Plan Substantive Tests- (Tests of Balances)...
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