Overview
1. Auditing
(400 per DB post) (APA format)
(No use of Artificial Intelligence) (No Plagiarism)
As an auditor, it is important to gain a comprehensive understanding of every aspect of a client’s internal control. This helps in evaluating control risk and preparing for the audit of the client’s financial statements. Choose one of the following questions to discuss:
- For what purposes should an auditor use their understanding of internal control components to plan an audit?
2. Auditing
(300 per DB reply ) (APA format)
(No use of Artificial Intelligence) (No Plagiarism)
Hope Almaraz
Dec 7 9pm| Last reply Dec 7 11:57pm
Reply from Hope Almaraz
Hello Class!
This week, I chose to answer the question: What are the documentation requirements for a client’s internal control and assessed level of control risk?
As our textbook explains, auditors are required to document their understanding of a client’s internal control system well enough to support both the assessment of control risk and the overall audit plan (Louwers et al., 2024). This documentation does not have to be complicated, but it does need to clearly show how the client’s system is designed, who performs specific controls, and how those controls help prevent or detect errors in the financial statements.
Auditors usually use a mix of narratives, flowcharts, or internal control questionnaires to organize this information. The important thing is that the documentation shows how transactions move through the system and identifies the specific controls that relate to important financial statement assertions. Louwers et al. (2024) emphasize that auditors cannot assess risk properly or plan the proper procedures without first understanding what controls are in place and how they are supposed to work.
Once the auditor evaluates the controls, they also have to document their assessment of control risk. If the audit team decides to rely on certain controls, the workpapers need to show which controls were tested, how they were tested, and whether the results support relying on them. On the other hand, if the auditor decides not to rely on controls or assesses control risk at the maximum, that conclusion must be documented as well, along with the reasons behind it.
Overall, the documentation creates a clear link between what the auditor learned about internal control, how control risk was assessed, and how the rest of the audit will be carried out. Louwers et al. (2024) make it clear that this step isn’t just a formality; it’s what allows the audit team, and anyone who reviews the file later, to understand the reasoning behind the audit strategy.
Reference Louwers, T. J., Blay, A. D., Strawser, J. R., & Thibodeau, J. C. (2024). Auditing & assurance services (9th ed.). McGraw Hill.
3. Auditing
(300 per DB reply ) (APA format)
(No use of Artificial Intelligence) (No Plagiarism)
Diana Davis
Dec 6 6:49pm| Last reply Dec 7 11:15pm
Reply from Diana Davis
Hello classmates, and Prof Bowen.
For this discussion, I will answer question number two: What factors should an audit team consider when trying to reduce the planned assessed level of control risk below the maximum?
In order for auditors to reduce the planned assessed level of control risk below the maximum, the controls they implement must be strong and reliable to the point that they will be satisfied with testing a portion of the subject they are auditing, rather than the entire thing.
Internal controls must demonstrate that they are designed to prevent fraud and are being implemented exactly as intended. For example, at my job, a project coordinator approves an invoice from the field and forwards it to AP. The accounting department is the only one that can make changes to the project budget once it has been approved. If the project coordinator approves a vendor invoice above the budgeted amount, the invoice gets flagged and must be approved by the project manager. All additions or subtractions to the budget must be approved by the owner of the project, the construction manager, and the representative of the subcontracting company. The invoice does not get approved until after the change order, to add or subtract from the budget, has been approved.
In this scenario, the design, implementation, and effectiveness of my company’s internal controls prove to be effective. If there was any ill-intention for fraud between the jobsite superintendent and a preferred vendor, where they could conspire to overcharge for material, it would be unlikely to succeed, as the padded invoice must pass through three departments (project coordinator, project manager, and accounts payable). The chances of such a scheme going undetected are slim. These are the types of factors that an audit team must consider when trying to reduce the planned assessed level of control risk below the maximum. Auditors must determine whether they can rely on the information provided by the company being audited.
Thank you,
Diana Davis