Reference no: EM132368743

Topic - Gaining an understanding of the client's system of internal controls

On completing the learning activities associated with this topic you should be able to

1. Define internal control.

2. Discuss the seven generally accepted objectives of internal control activities.

3. Explain the elements of internal control at the entity level.

4. Describe the elements of internal control at the transaction level.

5. Explain the different techniques used to document internal controls.

6. Describe how to communicate internal control strengths and weaknesses to those charged with governance.

Reading guide - References: Moroney, Campbell and Hamilton, Chapter 6.

Standards:

ASA 260: Communication with Those Charged with Governance.

ASA 265: Communicating Deficiencies in Internal Control to Those Charged with Governance and Management

ASA 315: Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment

Review questions:

1. If an auditor does not intend to rely on internal controls in the audit, does the auditor need to obtain an understanding of internal control? Explain.

2. Why would an auditor be interested in a client's internal control monitoring processes?

3. Discuss the role of internal audit in an entity's system of internal controls. Is internal audit an essential element of a control system? Explain.

4. Why do auditors prepare management letters?

5. Explain each of the seven generally accepted objectives of internal control activities.