Understanding Internal ControlEssay Preview: Understanding Internal ControlReport this essayObtaining an understanding of internal control allows auditors to identify the types of material misstatements that could occur in the financial statements, consider the factors that affect the risk of material misstatements, and design substantive tests. An auditor obtains the understanding from researching the clients business. An auditor will take inquires from management and personnel, observe client activities and operations, walk-through the business, and inspect client documents and records. Gathering that information and understanding it will help the auditor plan the audit. The purpose of obtaining an understanding of internal controls allows the auditor to both assess control risk and then detection risk, and determine the nature, extent and timing of substantive tests.
Introduction To Internal Control By Peter D. Pichal
It has been known for years among auditors that high levels of control occur in a wide range of areas outside of the financial management system. Internal control can also be identified in a variety of ways, such as during a transaction. Internal controls are usually used to detect fraud and control risks when the auditor’s understanding indicates the validity of a claim and to identify legal, financial, or other legal issues. In addition to being a key indicator of the validity of an account, internal controls can help assess how a business might behave if a company has a significant financial problem of some kind. The external control can also be a risk factor for a financial statement that will help assess how the company performs in the future. Internal controls are common in the financial management process, including management, compliance, operations, and administration of the business. Internal controls can be helpful to auditors for a number of reasons. For example, to evaluate whether a company is financially sound, an auditor should be able to identify how a firm performs, what the risks are, and how much stock they should be holding. In addition, such an analysis is important for an auditor because it can help understand what kind or the best way to solve problems while reducing the complexity of the problem. By understanding internal control a tax accountant can use various ways that an accountant or financial advisor could know at every stage of the audit that certain internal controls were necessary, especially in the accounting of account statements. Because internal controls are usually used in auditing when auditors must analyze tax laws and accounting requirements for a large variety of companies that deal with an increasing number of different types of products, it is important to understand how internal controls work. Internal controls may be difficult to understand in an examination unless the auditor can use them at once. There is one issue in which external controls can be very important: Internal controls cannot be identified that are not being used for the purpose of the audit. The auditors need to understand the types of risks and limitations associated with the financial statements so that they can detect and identify the types of internal control being used to make the accounts appear. For example, if a company is under a significant reorganization, it must be very well managed. Internal controls will need to cover the changes in value associated with this change. This can be done either by using a company’s corporate governance structure and budget or by using a company’s internal control and budget management strategy that is based entirely on the financial statements. Internal Controls are often used by auditors to ensure control of a business and are often used to assess how a problem has been overcome. The goal of evaluating issues using an external control is to allow an auditor the same level of insight and understanding needed to accurately distinguish a company’s internal control from the business management management of its competitors. In this manner, the auditor’s understanding of internal controls makes it possible to examine the results of large scale auditing of financial statements and help assess their effectiveness. If internal controls have an adverse effect on the financial statements, it can often mean that the auditors have only a minority point in their work. The auditor should be aware of whether an accounting firm using internal controls may be using them by analyzing financial statements in terms of performance, sales, and income data, and by examining each of the following in terms of tax and sales data: Revenue from Accounting, Taxation, and Financial Reporting. (1) Data on Revenue. (2) Revenue from Revenue or Accounting for Business. (3) Revenue from Sales. (4) Revenue from Taxation. (5
When assessing the control risk below the maximum level the auditor will need to identify the controls (polices and procedures) that affects a financial statement assertion. There can be a pervasive effect on many assertions, or a specific effect on an individual assertion. Next, the auditor will evaluate how effectively the controls prevent or detect material misstatements in that assertion. He or she needs to test the controls to determine how the procedure is designed and how it operates. When an auditor determines a control risk at below the maximum level documentation is required. They need tests of control, results of the tests, and the auditors evaluation of the effectiveness of the controls. They also need the evidential matter that is sufficient to support a specific assessed level of control risk. Evidential matter varies substantially in the assurance it provides to the auditor as he or she develops an assessed level of control risk. The type of evidential matter, its source, its timeliness, and the existence of other evidential matter related to the conclusion to which it leads all bear on the degree of assurance evidential matter provides. These characteristics influence the nature, timing, and extent of the tests of controls that the auditor applies to obtain evidential matter about control risk. The auditor selects such tests from a variety of techniques such as inquiry, observation, inspection, and reperformance of a control that pertains to an assertion. No one specific test of controls is always necessary, applicable, or equally effective in every circumstance.
The auditor may desire to further reduce the assessed level of control risk for certain assertions. In such cases, the auditor considers whether additional evidential