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17-IC Consideration and approach
Terms in this set (12)
4 primary phases of IC consideration during the audit?
1. Obtain an understanding of IC and document it
2. Make a preliminary evaluation about reliance on IC: consider design effectiveness and cost benefit issues
3. Perform the appropriate tests of control if reliance is planned to determine operating effectiveness
4. Reevaluate that reliance based on results of the tests of control
1st phase of IC consideration and question to ask and answer?
Obtain preliminary understanding of IC and the flow of documents related to transactions; document it.
Is IC adequate to perform the audit?
If not disclaim or withdraw
2nd phase of IC consideration and questions to ask and answer?
Make preliminary evaluation about whether to rely on controls: Consider adequacy of design and cost/benefits
Is IC effectively designed?
If effective ->Is reliance on IC cost beneficial?
Yes->Tests of Control
No-> Do not rely on IC
If ineffective: Do not rely on IC
3rd phase if IC consideration?
Tests of controls for those which intend to rely on
4th phase of IC consideration?
Re-evaluate reliance based on testing.
End objective of consideration of IC?
Prepare written audit program/strategy with appropriate extent of substantive audit procedures
3 requirements when the auditor assesses control risk below the maximum level?
1) obtain an understanding of the internal control structure;
2) identify specific controls relevant to specific financial statement assertions; and
3) test the identified controls to determine if they are operating effectively.
3 requirements of auditor in gaining understanding of IC?
1. consider factors that affect the risk of material misstatement,
2. identify the types of potential misstatements that can occur, and
3. ascertain whether internal controls have been placed in operation
An auditor may assess CR at max level for certain assertions because
Evaluating effectiveness of IC is inefficient
What is used to assess control risk?
Tests of controls
Techniques for tests of controls?
Inquiries, inspection of documents, observation and reperformance
Circumstances that merit tests of controls?
If substantive procedures alone don't limit audit risk enough
THIS SET IS OFTEN IN FOLDERS WITH...
16- Internal Control Basics
18-Internal Control Standards
19-Communication of IC matters identified during a…
20-Using internal audit
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