Obtaining and Understanding of Internal Controls Flashcards
What is the auditors responsibility for internal During the review phase, what is the auditors responsibility with respect to internal control?
Obtain and initial understanding of the internal controls and document that understanding.
To help determine time, extent of further audit procedures
How does an auditor obtain an initial understanding of internal control?
1) Inquiry of appropriate personnel
2) Observation of client activities
3) Review of documentation- The auditor reviews relevant documentation, including the clients accounting manuals, prior-year audit documentation, etc.
What is a transaction cycle?
Example of specific transactions cycles:
- Revenue/receipts
- Expenditure/Disbursements
- Payroll
- Others: manufacturing inventory, fixed assets
What is the primary focus of the internal control analysis?
Transaction Cycles
Are auditors required to document internal controls? Why?
yes, because it is VERY important to designing audit planning.
How can you document your understanding of internal controls?
3 basic ways to document that understanding:
1) Flowcharts
2) Internal control questions (ICQS)
3) Narrative write-up (memorandum)- Widely-used
What is a walk through?
Auditors have documented their understanding.
A walk through is selecting a small number of transactions from the source documents to the general ledger.