Using A Top Down Approach To Auditing Accounting Essay

The top-down attack is a extremely accurate tool used to observe material misstatements in a company ‘s fiscal records. Hearers should utilize this attack to finding a company ‘s overall hazards in internal control. The procedure begins with a reappraisal of the fiscal statements so limelights entity-level controls to farther focal point on major histories and revelations. Once the hearer has an apprehension of possible hazards that may steal through the internal control procedure, they set up trials to guarantee the truth of company controls. The controls that attract attending from the hearer relate straight with their decision on whether the company ‘s internal controls are accurate in fiscal statements. Entity-level controls are different from company to company but are by and large set up to supervise countries that normally lead to inaccurate figures. Some illustrations of these entity-level controls include restricting direction override, supervising consequences of operations, and developing new company policies that address concern control and hazard direction patterns.

A cardinal entity-level control screens the environment of a company to see the preciseness of their internal controls over fiscal coverage. In proving this control, the hearer must guarantee that the motivations of direction promote an effectual and responsible attack to fiscal coverage and besides whether the audit commission shows duty in their supervising of direction. The hearer must besides develop an apprehension of the company ‘s period-end fiscal coverage procedure by reexamining company processs. These processs include come ining in informations into general leger histories, choosing accounting policies, treating journal entries, entering repeating and nonrecurring accommodations, and fix fiscal statements and related revelations. The hearer must reexamine input systems and information engineering the company uses in describing fiscal statements to see there truth. The hearer must besides be knowing on direction ‘s duty in the procedure of describing figures on the fiscal statements.

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Hearers utilizing the top down attack must be able to place of import histories and revelations that may hold a higher chance of incorporating inaccuracies ; taking to material misstatement in the company ‘s fiscal statements. Common averments include being, completeness, rating, rights and duty, presentation and revelations. Hearers continually evaluate qualitative and quantitative factors related to the figures listed on the fiscal statements these averments would include but non limited to the size and volume of histories, complexness of revelations, and important alterations from twelvemonth to twelvemonth or one-fourth to one-fourth. A judgement call must be made by the hearer in calculating what is most likely to steal through company controls and consequence in materially misstated fiscal records. The hazards in internal control are similar to those hazards in an audit of companies ‘ fiscal statements, so an hearer may measure comparable histories and revelations to assist place the major menaces. Companies working with different locations or multiple entities should hold consolidated fiscal statement in which the hearer examines, happening possible failings and so indicates scoping determinations for the company.

To understand cardinal beginnings of misstatements the hearer must recognize and understand how the minutess flow within the company ( processs, mandate, and certification ) , controls that direction has put in topographic point and how they stay free of misstatements due to directions eagerness to delight shareholders. Due to the fact that a big bulk of the hearers work is based on judgement the work should be delegated to different persons within a house so the hearer is non ever scrutinizing his or her ain work. One of the most good resources to the hearer is the usage of walkthroughs. Walkthroughs are the procedure of following a dealing from basic diary entries all the manner to the fiscal statement. During critical points of the walkthrough the hearer will oppugn forces and discourse issues covering with internal control processs issued by the company. The hearer will choose minutess that will prove those controls that are of import to the hearer ‘s determination on the company controls. Multiple controls may be tested with one dealing if so it is non necessary to retest that control. The controls selected to be tested extensively trade with the hearers relevant averment non on how the control is labeled.

It frequently becomes cloudy when finding the differences between a important lack and a material failing. Both in kernel are the same, although a important lack is less terrible than a material failing. If a company has a stuff failing in their internal control over fiscal describing they have a blemished system. This creates the possibility that a material misstatement will be translated onto the company ‘s fiscal statements and will non be discovered until it is excessively late. A important lack is similar in the fact that there is besides a defect in the company ‘s internal control system ; nevertheless this defect is less important than a material misstatement. If a company is found to hold a important lack the hearer will relay this information to those persons in charge of supervising the company ‘s fiscal coverage.

Consequently, hearers use techniques of sensing to assist them detect material failings. Typical indexs include the acknowledgment of fraud ( even if the fraud is immaterial ) , reexamining old stuff misstatement corrections, an indicant of stuff misstatement that would non hold been discovered by company controls, and the effectivity of the company ‘s audit commission. When a lack or a combination of lacks arises the hearer must make up one’s mind on the type confidence that would delight company leaders and would fulfill the ordinances of GAAP. If it is determined that a lack will impede company functionaries in the behavior of their ain traffics in reasoning that they have “ sensible confidence that minutess are recorded as necessary to allow the

readying of fiscal statements in conformance with by and large accepted accounting

rules, so the hearer should handle the lack, or combination of lacks, as

an index of a stuff failing ” .

In add-on, all material failings must be communicated to the company ‘s direction and the audit commission. This is done with a written statement placing these lacks that the audit squad has discovered. The written statement on the company ‘s internal control processs must be given to these groups prior to the hearer ‘s concluding study. If it is discovered that audit commission is unproductive in oversing internal control over fiscal describing a written statement must be given to the company ‘s wide of managers. Significant lacks should besides be communicated to the audit commission and direction in composing. These lacks if antecedently stated do non hold to be repeated. The hearer is non responsible to execute processs that clearly explain the lacks but they must pass on lacks they are cognizant of. The audit of internal control over fiscal coverage does non offer the hearer confidence that all lacks under stuff failings have been identified so the hearer should non publish a study. Finally, the hearer must be cognizant of their duties under AU subdivision 316 and subdivision 317 in instance they discover fraud or illegal Acts of the Apostless.


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