Internal Audit Concepts1

Question 1

What are inherent limitations on the potential effectiveness of an entity’s internal control structure and the reasons why a system of internal control is only designed to provide reasonable assurance of achieving an entity’s internal control objectives.

Answer 1

fallibility of human judgement and performance, and the possibility of collusion, or management override. These are the reasons

Question 2

In assessing control risks what techniques does an auditor use

Answer 2

Tests of controls directed toward effectiveness or operation of a control would ordinarily include inquiries, inspections of documents, observation, and reperformance of the application of a control.

Question 3

What is the ultimate purpose of assessing control risk?

Answer 3

The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the risk that material misstatements may exist in the financial statements. The assessment of control risk combined with the assessment of inherent risk aids the auditor in identifying where material misstatements might exist in the financial statements.