The top-down attack could indentify those controls which are the most of import to prove. A top-down attack should be used to scrutinize internal controls over fiscal coverage. It fundamentally has two stairss. First, it starts with fiscal statement degree and the apprehension of hazards from the fiscal coverage and second is the entity-level control.
In this attack, the hearer should be able to measure and prove the entity-level controls which are important to the decision that the hearer is traveling to do. The entity-level controls are different in preciseness and nature. Some entity-level controls are of import to forestall or observe timely footing. Some entity-level controls are designed to supervise the possible jobs in other controls. Timely footing misstatements to relevant averments could besides be detected or prevented by some other entity-level controls.
Entity-level controls consist of eight parts ; they are listed as the followers: A. controls related to the control environment. B. controls over direction override. C. hazard appraisal procedure of the company. D. centralized processing and controls, including shared service environments. E. controls to supervise consequences of operations. F. controls to supervise other controls, including activities of the internal audit map, the audit commission, and self-assessment plans. G. controls over the period-end fiscal coverage procedure. H. policies that address important concern control and hazard direction patterns.
The control environment is really of import to internal control. In order to measure the company ‘s control environment, the hearer should besides assess-1st, if operating or doctrine manner of the direction promote effectual internal control. 2nd, if ethical and unity values are to the full understood. 3rd, if the audit commission or Board exerts duty.
Period-end Financial Reporting Process is of import to the sentiments on internal control of the hearer and fiscal coverage or fiscal statements. The undermentioned processs are included in period-end fiscal describing process-1st, enter dealing sums into the general leger. 2nd, choice and application of accounting policies. 3rd, novice, authorise, record, and process diary entries. 4th, record accommodations to the fiscal statements. 5th, fixing fiscal statements and related revelations. The hearer should besides measure the undermentioned parts for the period-end fiscal coverage procedure: ( 1 ) The information engineering which involved in the period-end fiscal coverage procedure. ( 2 ) The inputs, processs performed, and end products of the procedures that the company uses for their fiscal statements. ( 3 ) people who participates from direction. ( 4 ) Locations related to the period-end fiscal coverage procedure. ( 5 ) Adjusting and consolidating entries. ( 6 ) The nature and extent of the inadvertence of the procedure.
The hearer has to place of import histories, revelation and averments that related. There are five averments that are included in the fiscal statement: ( 1 ) Being or happening ; ( 2 ) Completeness ; ( 3 ) Evaluation or allotment ; ( 4 ) Rights and duties ; ( 5 ) Presentation and revelation. There are risk factors that related to placing important histories and revelations and relevant averments ; they are composing and size of the history ; susceptibleness to misstatement ; volume of activity, complexness, and homogeneousness ; nature of the history ; accounting and coverage complexnesss ; losingss in the history ; important contingent liabilities originating ; related party minutess ; alterations from the anterior period. The hearer needs to find the possible misstatements which could do materially misstate the fiscal statements. The hearer should measure the same hazard factors in both the designation of important histories and in the audit of the fiscal statements. Different controls are necessary if a possible important history or revelation capable to differing hazards. The hearer should utilize the amalgamate fiscal statements to place important histories and revelations and their relevant averments if a company has more than one location or concern unit.
In order to understand the beginnings of misstatements, the following aims should be achieved: ( 1 ) minutess that related to the averments ; ( 2 ) confirm the designation within the procedures of the company ; ( 3 ) place the controls that address possible misstatements ; ( 4 ) place the controls that could do a material fiscal statement misstatement. The most effectual manner to understand the beginnings of possible misstatements is executing walkthroughs. The hearer follows the company ‘s inception minutess till the company ‘s fiscal studies reflect the minutess.
The choice of the controls to prove is really of import for the hearer ‘s consequences sing the controls efficaciously address the misstatement ‘s hazard of the company. The hazard of misstatement to an averment can be caused by multiple controls. Multiple averments can be caused by one control whether to choose a control for proving is depending on which control relates to assertion alternatively of how the control is labeled.
A stuff failing is a lack or a combination of lacks, in internal control over fiscal coverage, such that there is a sensible possibility that a material misstatement of the company ‘s one-year or interim fiscal statements will non be prevented or detected on a timely footing. A important lack is a lack, or a combination of lacks, in internal control over fiscal coverage that is less terrible than a material failing ; yet of import sufficiency to deserve attending by those responsible for inadvertence of the company ‘s fiscal coverage.
The followers are included in indicating of stuff failings ; ( 1 ) Designation of fraud ; ( 2 ) restatement of old fiscal statements ; ( 3 ) the hearer ‘s designation of stuff misstatements that have non been detected ; ( 4 ) the company ‘s external and internal fiscal coverage ‘s uneffective inadvertence.
The hearer should make up one’s mind the grade of confidence and degree of item when measuring the importance of a lack ( or combination of lacks ) . The hearer could handle the lack as a stuff failing ‘s index, if the finding of the hearer is that a lack may forestall prudent functionaries in their ain behaviors.
Writing is manner that hearer communicates to the audit commission and direction for all material failings during the procedure of scrutinizing. If an uneffective decision is made by the hearer from inadvertence of the company ‘s fiscal coverage, written communicating to the board of managers is required. If there are lacks that are identified during audit which are important lacks and need written communicating to the audit commission are the hearer ‘s considerations. All lacks besides need communicate in composing to direction. The hearer might go cognizant of fraud, while scrutinizing internal control over fiscal coverage.
The undermentioned elements must be included in the audit of internal control over fiscal coverage of the hearer ‘s study: ( 1 ) a rubric which includes the “ independent ” word ; ( 2 ) a statement which shows the duty of direction for measuring the effectivity and for keeping effectual internal control over fiscal coverage ; ( 3 ) designation of direction ‘s study ; ( 4 ) a statement that indicate express an sentiment on the company ‘s internal control over fiscal coverage is the hearer ‘s duty ; ( 5 ) internal control over fiscal coverage ‘s definition ; ( 6 ) a statement that provide the audit was conducted with the PCAOB ‘s criterions ; ( 7 ) statement which criterions the demands of PCAOB ; ( 8 ) statement that includes shows the apprehension of internal control over fiscal coverage of the company, etc. of the procedure of scrutinizing ; ( 9 ) statement that provides the sensible footing ; ( 10 ) a paragraph saying internal control over fiscal coverage might non observe or forestall misstatements ; ( 11 ) if the company maintained effectual internal control over fiscal coverage based on the hearer ‘s thought ; ( 12 ) the signature of the hearer ‘s house ; ( 13 ) the name of metropolis and province that the hearer ‘s study has been issued ; ( 14 ) the audit study ‘s day of the month.
