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- August 3, 2017 at 5:37 pm #400260
Hello Sir,
It would be very helpful if you can help in understanding how auditors can place reliance in the internal control system of their client. for instance, last sitting there was the following question.
describe procedures auditors should carry out before placing reliance on the internal control? 5 mark. sorry, I don’t mean to be awkward if I know the answer out there or how to get it, I would not have asked in the first place.
thanks for your time in advance.
August 4, 2017 at 10:53 pm #400460Document the internal control system eg flowchart or narrative.
Identify controls (eg authorisation of overtime) and identify control weaknesses (eg supplier invoices not cancelled when paid).
Test that the identified controls are operating properly throughout the year to see if they can be relied on.
Note: substantive tests must be performed where controls are missing or not operating properly.
August 6, 2017 at 10:52 pm #400798Hello
Does a weak control environment always give rise to an audit risk in that situation, for instance, lack of participation of directors or poor assignment of authority and responsibilities?August 6, 2017 at 11:26 pm #400804Hi ngaryitess,
I am not qualified to answer your question, and you can ask the tutor in ask form. however, it is for definite that when the internal control is weak the auditors must perform more substantive testing internal control element are: ACCAMAP
Authorisation from a suitable person, for instance, approving employs over time
Computer controls, files should be a password protected.
Comparison, month by month pay roll expenses.
Arithmetic, to confirm of accuracy,
Maintain control accounts, supervision of operation or production process.
Account reconciliations, to detect and correct error in a timely manner, for example, recevables should be reconciled on a monthly basis
Physical controls
Segregation of duties, to prevent fraud, for example, one person prepare the payroll and other person input the information to the system.if the ACCAMAP is not present in the internal control then the auditors need to perform more substantive testing.
Always remember that audit risk = inheritance risk control risk x detection risk.
and the lower the control is the higher the audit risk is.
hope that helped.
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