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LS3

The document discusses internal control documentation, which can take various forms such as flowcharts, questionnaires, and narrative descriptions. The extent of documentation may depend on the complexity of the area. Documentation ranges from generic guidelines for simple entities to detailed written policies and procedures for more complex organizations. Common documentation methods include flowcharts supplemented with narratives, questionnaires, and memorandums for small entities. These constitute well-known ways to identify and document control activities.

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50 views

LS3

The document discusses internal control documentation, which can take various forms such as flowcharts, questionnaires, and narrative descriptions. The extent of documentation may depend on the complexity of the area. Documentation ranges from generic guidelines for simple entities to detailed written policies and procedures for more complex organizations. Common documentation methods include flowcharts supplemented with narratives, questionnaires, and memorandums for small entities. These constitute well-known ways to identify and document control activities.

Uploaded by

ninenrqz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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We chose these review questions because we wanted to emphasize the importance of client’s system of

internal control for reliable financial information and how efficient the internal control could affect audit
procedures.

#8

Control activities is one of the components of internal control.

In PSA 315, it was stated that the auditor shall obtain an understanding of control activities relevant to
the audit to assess the risks of material misstatement and design further audit procedures responsive to
assessed risks. In other words, in understanding the entity’s control activities, the auditor can obtain an
understanding of how the entity has responded to risks.

1. Read the slide;


“It contributes to effective internal control through:”
“Thus, improve the internal control of the company”

2. Information processing controls has 4 areas:

3. For example, responsibilities for receiving cash or checks, preparing the deposit, and reconciling
the deposit should be separated. It serves two key purposes: It ensures thorough review to
catch errors and it helps prevent fraud or theft as it requires two people to collude to hide a
transaction. This is important in achieving effective internal control because it reduces the risk of
both erroneous and inappropriate actions. It helps ensure that errors, intentional or not, cannot
be made without being discovered by another person.

4. Relate primarily to safeguarding of assets. It is when equipment, inventories, securities, cash


and other assets are secured physically. This can occur through the use of locks, safes, or other
environmental controls. Access is restricted to those with authority to handle them. Physical
control is important in achieving effective internal control as this enhances the accuracy and
reliability of accounting records. It will also prevent access or attacks by malicious parties, which
includes terrorism, vandalism, and theft.
#12

An evaluation of internal control involves examining the effectiveness of an organization's internal


control system.

The primary reason for conducting an evaluation of an audit client's internal control is to provide a basis
to determine the nature and timing for relying upon the system and for an auditor to determine the
extent of other tests that must be performed to arrive at an opinion regarding the fairness of the entity's
financial statements. Strength and weaknesses identified during the evaluation of internal control and
tests of compliance will affect the nature, timing, and extent of audit procedures.

The secondary reason for evaluating an audit client's internal control is to provide a basis for
communicating significant errors or irregularities. Though audit is not specifically designed to search for
errors or irregularities, but during the study and evaluation of the internal accounting control system
and the performance of substantive tests, errors or irregularities may be discovered, and these facts
must be communicated.
#15

In PSA 330, test of controls is defined as an audit procedure designed to evaluate the operating
effectiveness of controls in preventing, or detecting and correcting, material misstatements at the
assertion level.

The definition of observation and reperformance are stated in PSA 500.

Read slide:

1. Observation: “For example, the auditor’s observation of inventory counting by the entity’s
personnel, or the performance of control activities.”

2. Reperformance: “For example, auditors may re-perform the procedure of bank reconciliation
that was performed by the client’s accountant.”

#16

The two kinds of engagements that can produce an auditor’s written report on internal control intended
for external use would be the Special Internal Accounting Control Study and Service auditor engaged to
report for the benefit of the user auditor and their mutual client. 

For the Special Internal Accounting Control Study, it is a report on Internal Accounting Control with
opinion on its system as a whole. While for the service auditor engaged to report for benefit of the user
auditor and their mutual client, it is a special-purpose  on Internal Accounting Control that can take
special forms, where in the main feature includes an opinion relating to the controls applied by the
service organization to the client organization’s transactions.

#19

Internal control documentation can take various forms, including flowcharts, questionnaires, and
narrative descriptions. The extent of documentation may vary depending on the complexity of the area.
Depending on the organization's nature, control documentation may range from generic guidelines to
detailed written policies and procedures.

In most instances, auditors use flowcharts supplemented by narrative descriptions as a starting point for
documentation work. Once these items are completed, auditors often use internal control
questionnaires or flowcharts to provide information not otherwise included. For a small entity,
documentation in the form of a memorandum may be sufficient. These methods constitute the most
well-known and commonly used forms of control identification and documentation.

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