Summary Of Material Weakness And Significant Deficiency Accounting Essay

Provided below is a sum-up of AS5 depicting the top down attack for scrutinizing of internal controls. The top down attack should be used for choosing controls that need to be tested during an audit. The hearer must be knowing of the overall hazards nowadays within the internal controls bring forthing the fiscal statements. Traveling down, the hearer so must look into entity-level controls, important histories and relevant averments. Hearers will look into countries that may make material misstatements on the fiscal statements. The hearer so tests these countries to verify no stuff misstatements have taken topographic point.

Identifying Entity degree controls

Entity-level trials will be chosen by hearers based on the strength of the company ‘s internal controls. Entity-level controls can be environmental, monitoring or preciseness controls. Environmental controls work indirectly to place misstatements in a timely footing. Monitoring controls find dislocations in lower degree controls. Preciseness controls find and prevent misstatements to averments. When these Entity-level controls are strong and effectual it will cut down the work of the hearer.

We will write a custom essay sample on
Summary Of Material Weakness And Significant Deficiency Accounting Essay
or any similar topic only for you
Order now

Entity degree controls are wide controls that apply to the full concern. These controls include the direction override procedure, hazard appraisal, and monitoring of IT systems and operations. First the hearer must measure the Control Environment by look intoing the committedness, moralss, battle and inadvertence of the Board of managers, audit commission, and top direction. They will look at these values and detect how they trickle down throughout the concern. The hearer must besides look into how the Period-end fiscal coverage procedure works. The hearer takes into history who is involved, the engineering used, the minutess, policies, and oversight when measuring the period terminal fiscal coverage procedure.

Identifying Significant Histories and Disclosures and Their Relevant Assertions

The hearer must happen histories and revelations that contain sensible possibility of material misstatement. The hearer will look at histories that need cogent evidence and proof to look into for material misstatement. This cogent evidence and proof will be completed with grounds of existence/occurrence, completeness, rights and duties, and presentation and revelation of minutess. When placing these histories that auditor must take into history quantitative and qualitative hazards. These hazards chiefly generated from size, activity, and complexnesss of the histories. The hearer will besides look at histories susceptible to fraud, losingss, and alterations from anterior period revelations. Some histories may be susceptible to many different hazards and should be mitigated with different types of controls. To happen these possible stuff misstatements the hearer must continually inquire “ what could travel incorrect? ” in these histories. An hearer must believe of motive and inducements to perpetrate fraud or misstatements in these histories. This procedure should be used for both fiscal statement audits and internal control audits.

Understanding likely Beginnings of Misstatement

To understand the likely beginnings of misstatement the hearer will seek to understand the procedure of mandate, recording, and flow of minutess. Hearers must happen where material misstatements could happen and where fraud can take topographic point. Review direction controls and patterns to happen countries susceptible to fraud and misstatement. Due to the grade of judgement needed the hearer should work entirely or oversee the work of those seeking for beginnings of misstatement. Throughout the top down approach the hearer should understand how information engineering will impact a company ‘s minutess, and how internal controls may be affected. A walkthrough is by and large the most effectual manner of understanding likely beginnings of misstatements. An hearer will follow the complete procedure of a dealing from its inception through IT to the fiscal statements. During the walkthrough the hearer will inquire examining inquiries at points in which processing mistakes occur. These inquiries will assist the hearer understand the processs and controls in topographic point. The inquiries the hearers ask may happen or look into hazards beyond the minutess of the walkthrough.

Choosing Controls to prove

The hearer will take trials based on the information gathered about the strength of internal controls in topographic point at the company. There is no demand for redundancy in control trials. It is all right to utilize one control trial that will turn to many hazards. Or, it may take many control trials to turn to one hazard. The determination of which trials should be selected is based on how control tests address the hazard of observing misstatement alternatively of how the control is categorized. It is most of import to take trials that will observe or happen possibility of stuff misstatements.

Material Weakness Vs. Significant Deficiency

Both material failing and important lack reference lacks in the internal controls for fiscal coverage that will non let a company to describe or observe a material misstatement on a timely footing. The cardinal difference of these two footings is the grade of lack. While material failing reference issues of sensible possibility of material misstatement, important lack is less terrible but, of import plenty to inform top inadvertence of the company.

These two footings are separated by a list of indexs for stuff failing. They include the sensing of fraud by senior direction ; reissued fiscal statements to rectify material misstatement ; material misstatements found by that hearer that would non hold been detected by the company ‘s internal controls ; and uneffective inadvertence of external coverage, internal controls by the audit commission.

The hearer must describe through written communicating to the audit commission all stuff failings found, uneffective inadvertence by the audit commission of fiscal coverage and internal controls, and important lacks identified by the hearer during the audit.

The hearer must supply information on the audit study. Harmonizing to AS5 the hearer must province their sentiment on whether or non effectual internal controls were in topographic point at a specific day of the month.

×

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out