Here is how I would explain the trade-offs between tests of controls and substantive procedures based on the table:
If control risk is assessed at the maximum level, regardless of inherent risk, the auditor would need to perform substantive procedures with the lowest level of detection risk (highest scope). This means performing a high level of substantive procedures.
However, if the auditor performs tests of controls and determines controls are effective, they can assess control risk at a lower level. For example, if controls are effective in addressing some inherent risks, control risk could be assessed at a moderate level. In that case, for a moderate inherent risk, the auditor could perform substantive procedures with a moderate detection risk (moderate scope). This allows the auditor to reduce the
Risk-based auditing is a style of auditing which focuses upon the analysis and management of risk. ... A traditional audit would focus upon the transactions which would make up financial statements such as the balance sheet. A risk-based approach will seek to identify risks with the greatest potential impact.
Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
This presentation examines ICs and their effectiveness.
A process, effected by the entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding, achievement of (the entity’s) objectives
What are the major steps in a financial statement audit.pdfRathnakarReddy17
A financial statement audit is a formal examination of a company's financial statements. Its goal is to assess whether financial statements fairly and substantially accurately depict business operations and financial situation in compliance with the Generally Accepted Accounting Principles (GAAP) published by the Financial Accounting Standards Board. The income statement, balance sheet, statement of Cash Flow Budgeting and Forecasting in Washington, and other supporting disclosures are all specifically examined by the auditor for accuracy.A financial statement audit must be performed in accordance with GAAP by an impartial external auditor.
Risk-based auditing is a style of auditing which focuses upon the analysis and management of risk. ... A traditional audit would focus upon the transactions which would make up financial statements such as the balance sheet. A risk-based approach will seek to identify risks with the greatest potential impact.
Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
This presentation examines ICs and their effectiveness.
A process, effected by the entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding, achievement of (the entity’s) objectives
What are the major steps in a financial statement audit.pdfRathnakarReddy17
A financial statement audit is a formal examination of a company's financial statements. Its goal is to assess whether financial statements fairly and substantially accurately depict business operations and financial situation in compliance with the Generally Accepted Accounting Principles (GAAP) published by the Financial Accounting Standards Board. The income statement, balance sheet, statement of Cash Flow Budgeting and Forecasting in Washington, and other supporting disclosures are all specifically examined by the auditor for accuracy.A financial statement audit must be performed in accordance with GAAP by an impartial external auditor.
What is the procedure for financial statement audit.pdfRathnakarReddy17
The purpose of a financial statement audit is to add credibility to the reported financial condition and business performance. Annual reports must be submitted by all publicly traded corporations and are subject to SEC audits.Similarly, lenders typically require audits of the financial statements of the companies they finance. Suppliers may also require audited Financial Statement Preparation in New York before granting trade credit (usually only if the amount of credit requested is substantial).
ISO 19001ISO 19001Student’s NameUniversity Name.docxpriestmanmable
ISO 19001
ISO 19001
Student’s Name
University Name
Date
Instructor’s Name
Abstract
ISO 19001 and its Scope
This is an international standard that gives guidelines necessary for management systems auditing. International Organization for Standardization is in charge and controls this mark of quality. The standard gives an organization four resources which includes;
· An elaborate explanation of all basics of management systems auditing.
· Updated information concerning the competence and evaluation of selected auditors.
· Guiding instructions on how to carry out internal and external audits.
· Guiding instructions on management of the available audit programs.
The main idea behind any management system auditing is to gather crucial evidence and this requires competent personnel. Three techniques are usually employed in getting this information. These are visual observations, physical interviews involving staff members and reading the available documents. The auditor used should be competent with the specific areas being audited and have basic training in it (Waddell, D 2005)
Internal audits
Internal audits are a function of an organization operating independently from other departments and usually reports to the appointed audit committee. They are charged with carrying out audits of the organization in all sections of the business as dictated by the annual audit plan. They are in charge of monitoring the financial flow in every department of the business. They focus on the keys issues facing the business and how well the management is working to have the problems solved. They are involved in decision making process regarding issues affecting the business that need to be improved for efficiency and increased returns. They keep the company updated at all times to make sure that finances are well utilized to maximize the returns. They generally help the company to keep going as they combine assurance and consulting services to ascertain that they achieve the very best. (Mock, TJ & Wright)
Internal auditors are professionals who are independent to the areas they carry out the audits. This is meant to reduce cases of fraud and be biasness. They must abide to a code of ethics, a core requirement for this career. They must be compliant with international standards and this increase and assures the quality of their output. They are put on mentoring and upgrading programs on regular basis to sharpen their skills and to keep them updated on upcoming issues and technology necessary for their practice.
External audits
External audits are external functions who work for an organization to carry out and confirm audits. They reside outside the governance of the business but they may at times be shareholders of the organization. Their objective is to add credibility of the financial reports earlier given by internal audits. Their coverage is mainly financial reports and other financial reporting risks. They have no responsibility in mon ...
Chapter 9Audit Risk AssessmentPrepared by Dr Phil Saj1.docxmccormicknadine86
Chapter 9
Audit Risk Assessment
Prepared by Dr Phil Saj
1
Learning objectives
Appreciate the importance of audit risk assessment and why it is linked to financial statement assertions.
Explain the importance of business risks in audit planning.
Describe the procedures performed by an auditor to assess risk.
Appreciate the importance of internal control to an entity and to its independent auditors.
2
Learning objectives
Indicate the procedures for obtaining and documenting an understanding of the entity’s internal control.
Explain why and how a preliminary assessment of control risk is made.
Explain the importance of the concept of audit risk and its three components.
3
Management’s financial statement assertions
Existence or occurrence
Assets or liabilities of the entity exist at a given date and whether recorded transactions or events have occurred during the period.
Completeness
Transactions, events and accounts that should be presented in the financial statement are included.
Cut-off
All transactions, events and accounts have been recorded in the correct period.
4
Management’s financial statement assertions
Rights and obligations
Assets represent rights of the entity and liabilities
are the obligations of the entity at a given date.
Valuation and allocation
Asset, liability, components have been included in the
financial statements at the appropriate amounts.
Accuracy
Transactions have been appropriately recorded
in the proper accounts.
5
Management’s financial statement assertions
Presentation and disclosure
Particular components of the financial statements are
properly classified, described and disclosed.
Refer to the textbook Table 9.1, page 363, for illustrations of each of these assertions.
6
Business risk assessment
A business risk approach allows the auditor to:
Identify threats faced by the organisation.
Recognises that most business risks will eventually
have an effect on the financial statements.
Increase the chances of identifying risks of material
misstatements in the financial reports
Categories of business risk:
Financial risk
Operational risk
Compliance risk
7
Risk assessment procedures
Enquiries
Management, staff, internal auditors, company bankers,
legal advisors.
Analytical procedures
Provide a broad indication of the likelihood of possible
errors.
Observations and inspections
Inspection of manuals, visiting business premises,
observing procedures taking place.
8
Importance of internal control
The Committee of Sponsoring Organisations (COSO) of
the Treadway Commission defines internal control as:
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:
Effectiveness and efficiency of ...
The Indian economy is classified into different sectors to simplify the analysis and understanding of economic activities. For Class 10, it's essential to grasp the sectors of the Indian economy, understand their characteristics, and recognize their importance. This guide will provide detailed notes on the Sectors of the Indian Economy Class 10, using specific long-tail keywords to enhance comprehension.
For more information, visit-www.vavaclasses.com
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
How to Create Map Views in the Odoo 17 ERPCeline George
The map views are useful for providing a geographical representation of data. They allow users to visualize and analyze the data in a more intuitive manner.
We all have good and bad thoughts from time to time and situation to situation. We are bombarded daily with spiraling thoughts(both negative and positive) creating all-consuming feel , making us difficult to manage with associated suffering. Good thoughts are like our Mob Signal (Positive thought) amidst noise(negative thought) in the atmosphere. Negative thoughts like noise outweigh positive thoughts. These thoughts often create unwanted confusion, trouble, stress and frustration in our mind as well as chaos in our physical world. Negative thoughts are also known as “distorted thinking”.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
For more information, visit-www.vavaclasses.com
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
Ethnobotany and Ethnopharmacology:
Ethnobotany in herbal drug evaluation,
Impact of Ethnobotany in traditional medicine,
New development in herbals,
Bio-prospecting tools for drug discovery,
Role of Ethnopharmacology in drug evaluation,
Reverse Pharmacology.
Model Attribute Check Company Auto PropertyCeline George
In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
2. Internal Control
A process, effected by the entity’s board of directors, management, and
other personnel, designed to provide reasonable assurance regarding,
achievement of (the entity’s) objectives relating to:
❑Operations
❑Reporting, and
❑Compliance
3. Control Objectives
In each area of internal control (Reporting, Operations and
Compliance)
◦ Control objectives and
◦ Sub objectives exist
External Reporting Example: Accounts Receivable (A/R)
Top level objective – prepare and issue reliable financial information
◦ Detailed level applied to A/R sub objectives
◦ All goods shipped are accurately billed in the proper period
◦ Invoices are accurately recorded for all authorized shipments and only for such
shipments
◦ Authorized and only authorized sales returns and allowances are accurately
recorded
◦ The continued completeness and accuracy of A/R is ensured
◦ Accounts receivable records are safeguarded
4. Foreign Corrupt Practices Act
Passed in 1977 in response to American corporation
practice of paying bribes and kickbacks to officials in
foreign countries to obtain business
The Act
◦ Requires an effective system of internal control
◦ Makes the payment of bribes to foreign officials illegal
5. Components of Internal Control - CRIME
The Control Environment
Risk Assessment
Control Activities
Information System Relevant to Financial Reporting and
Communication
Monitoring Activities
6. Control Environment
Commitment to integrity and ethical values.
Board of directors demonstrates independence from
management and exercises oversight of internal control.
Establishment of effective structure, including reporting
lines, and appropriate authorities and responsibilities.
Commitment to attract, develop, and retain competent
employees.
Holding employees accountable for internal control
responsibilities.
7. Risk Assessment
Clearly specify ROC objectives to allow the
identification and assessment of risks related to
those objectives.
Identify and analyze risks to the achievement of its
objectives to determine how they may be
managed.
Consider potential fraud relating to the
achievement of objectives.
Identify and assess changes that could impact
internal control.
8. Control Activities
Performance reviews
Transaction control activities
Physical controls
Segregation of duties
◦ Segregate Proper authorization, access, recording, and custody of assets (SPARC)
◦ Fundamental principle – ensure two or more persons participate in every transaction
9. Objectives of an Accounting Information System
Identify and record valid transactions
Describe on a timely basis the transactions in sufficient
detail to permit proper classification of transactions
Measure the value of transactions appropriately
Determine the time period in which the transactions
occurred to permit recording in the proper period
Present properly the transactions and related disclosures in
the financial statements
10. Monitoring
Ongoing monitoring activities
◦ Regularly performed supervisory and management activities
◦ Example: Continuous monitoring of customer complaints
Separate evaluations of internal control
◦ Performed on nonroutine basis
◦ Example: Periodic audits by internal audit
11. Controls over Financial Reporting
Preventive
◦ Aimed at avoiding the occurrence of misstatements in the financial
statements
◦ Example: Segregation of duties
Detective
◦ Designed to discover misstatements after they have occurred
◦ Example: Monthly bank reconciliations
Corrective
◦ Needed to remedy the situation uncovered by detective controls
◦ Example: Backups of master file
Controls overlap
◦ Complementary – function together
◦ Redundant – address same assertion or control objective
◦ Compensating – reduces risk existing weakness will result in misstatement
12. Limitations of Internal Control
Errors may arise from misunderstandings of
instructions, mistakes of judgment, fatigue, etc.
Controls that depend on the segregation of
duties may be circumvented by collusion
Management may override the structure
Compliance may deteriorate over time
13. Enterprise Risk Management (ERM)
COSO issued a framework in 2004 (revised in 2017) on
Enterprise Risk Management (ERM). It does not replace
the original COSO internal control framework.
It goes beyond internal control to focus on how
organizations can effectively manage risks and
opportunities.
The auditing standards are still structured around the
original COSO internal control framework but the risk
management framework is useful in evaluating the risk
assessment component of internal control.
15. Auditors’ Overall Approach with Internal
Control
Review: Overall approach of an audit
1. Plan the audit
2. Obtain an understanding of the client and its environment, including
internal control
3. Assess the risks of material misstatement and design further audit
procedures
4. Perform further audit procedures
5. Complete the audit
6. Form an opinion and issue the audit report
Steps 2-4 relate most directly to the role of internal
control in financial statement audits
16. Obtain an understanding of the client and its
environment, including internal control
The understanding of internal control is used to help the auditors
to
◦ Identify types of potential misstatements
◦ Consider factors that affect the risks of material misstatement
◦ Design tests of controls (when applicable) and substantive procedures
Auditors must consider all five internal control components
◦ Control environment
◦ Accounting information system
◦ Risk assessment
◦ Control activities
◦ Monitoring
In doing so, the auditors should also consider areas difficult to
control like non-routine transactions
17. Obtaining the Understanding
Procedures include
◦ Inquiring of entity personnel
◦ Observing the application of specific controls
◦ Inspecting documents and reports
◦ Tracing transactions through the information system relevant to financial reporting
May also obtain evidence on operating effectiveness of various controls
18. Documenting the Understanding of Internal Control
Questionnaires
◦ Typically standardized by firm
Written Narratives
◦ Memos that describe flow of transactions
Flowcharts
◦ Systems flowcharts
Walk-through
◦ Trace one or two transactions through cycle
23. Assess the Risks of Material Misstatement
General approach
◦ Identify risks while obtaining an understanding of the client
and its environment, including its internal control
◦ Relate the identified risks to what can go wrong at the relevant
assertion level
◦ Consider whether the risks are of a magnitude that could result
in a material misstatement
◦ Consider the likelihood that the risks could result in a material
misstatement
24. The Nature of Transactions
Consider the nature of the transactions
◦ Routine transactions—e.g., revenue, purchases, and cash receipts and
disbursements
◦ Non-routine transactions—e.g., taking of inventory, calculating depreciation
expense
◦ Estimation transactions—e.g., determining the allowance for doubtful accounts
Generally routine transactions have the strongest
controls
25. Assessing Risks at the Financial
Statement Level
Examples
◦ Preparing the period-end financial statements, including the development
of significant accounting estimate and preparation of the notes
◦ The selection and application of significant accounting policies
◦ IT general controls
◦ The control environment
Responses to high risks
◦ Assigning more experience staff or those with specialized skills
◦ Providing more supervision and emphasizing the need to maintain
professional skepticism
◦ Incorporating additional elements of unpredictability in the selection of
further audit procedures to be performed
◦ Increasing the overall scope of audit procedures, including the nature,
timing or extent
26. Assessing Risks at the Assertion Level
Examples
◦ Failure to recognize an impairment loss on a long-lived asset affects only the
valuation assertion
◦ Inaccurate counting of inventory at year-end affect the valuation of inventory and
the accuracy of cost of goods sold
Responses
◦ Decisions are made here as to the appropriate combination of tests of controls and
substantive procedures
27. Perform Further Audit Procedures – Test of Controls
Approach:
◦ Identify controls likely to prevent or detect material
misstatements
◦ Perform tests of controls to determine whether they are
operating effectively
Tests of controls address:
◦ How controls were applied
◦ The consistency with which controls were applied
◦ By whom or by what means (e.g., electronically) the controls
were applied
28. Perform Further Audit Procedures – Test of Controls
Tests of controls include:
◦ Inquiries of appropriate client personnel
◦ Inspection of documents and reports
◦ Observation of the application of controls
◦ Reperformance of the controls
The results of the tests of controls are used to determine the nature, timing
and extent of substantive procedures
29. Effects of Data Analytics
Data analytics may be used to perform tests of controls (operating
effectiveness); auditors may test controls over the entire population of
transactions rather than a sample
Will use Urgent Medical Device as an example
30. Use of the Work of Internal Auditors
Work of Internal Auditors may be used in two ways:
◦ Obtaining audit evidence by using the internal auditors’ work performed as a part of
their normal responsibilities, and
◦ Using internal auditors to provide direct assistance on the external audit.
31. Service Organizations
Computer service organizations provide processing services to customers who
decide not to invest in their own processing of particular data
Examples: Outsource processing of payroll or Internet sales; storage of data
and records in the service organization’s Cloud
32. Service Organizations
Auditor should obtain understanding of the outsourced
function by following one or more of:
◦ Contacting service organization to obtain information.
◦ Visiting service organization an performing necessary
procedures.
◦ Obtaining a report from service organization
Terms
◦ Service auditor—provides examination of service
organization’s controls.
◦ User Auditor—Uses that report.
33. 7-33
Service Organizations
Types of Service Auditor Reports
◦ Type 1—Management’s description of the system and
the auditor’s assessment of the suitability of the
design of controls
◦ Type 2—Attributes of 1, plus assurance on the
operating effectiveness of controls
◦ A Type 2 report may provide the user auditor with a basis for
assessing control risk below the maximum.
35. Internal Control in the Small Company
Due to lack of employees, internal control is seldom strong in
small businesses
Specific practices for small businesses
◦ Record all cash receipts immediately
◦ Deposit all cash receipts intact daily
◦ Make all payments by serially numbered checks, with exception of petty
cash disbursements
◦ Reconcile bank accounts monthly and retain copies
◦ Use serially numbered invoices, purchase orders, and receiving reports
◦ Issue checks to vendors only in payment of approved invoices that have
been matched with purchase orders and receiving reports
◦ Balance subsidiary ledger with control accounts
◦ Prepare comparative financial statements monthly to disclose significant
variations in any category of revenue or expense
36. Assume that you have been hired by Willington, CPA, as a new staff assistant. He informs you that his approach
to audits has always been to assess control risk at the maximum and perform all the substantive procedures he
considers necessary. However, he has recently read an article in The Journal of Accountancy that indicates that a
more efficient audit may sometimes be achieved by performing some tests of controls and thereby assessing
control risk at a lower level. Willington shows you the following table that came from the article:
Assessed Level of Control Risk
Inherent
Risk Low Moderate Maximum
Low Highest allowable detection risk
(lowest allowable scope of
substantive procedures)
High detection risk (low
scope of substantive
procedures)
Moderate detection
risk (moderate scope of
substantive procedures)
Moderate High detection risk (low scope
of substantive procedures)
Moderate detection risk
(moderate scope of
substantive procedures)
Low detection risk (very high
scope of substantive
procedures)
Maximum Moderate detection risk
(moderate scope of
substantive procedures)
Low detection risk (very
high scope of substantive
procedures)
Lowest detection risk (highest
scope of substantive
procedures)
Willington understands that the table is only for illustrative purposes and that other “in between” levels of the
various risks are possible, but he wants you to use the ones in the table to help him understand the trade-offs
between tests of controls and substantive procedures. He understands that these risks would be assessed at the
assertion level for the various accounts, but he wants to better understand how the various tests performed in an
audit “tie together.” To keep things simple, he says to assume that inherent risk is at the maximum level in all
cases.