What are the basic steps of an audit?
- Prepare for the audit
- Obtain understanding of client, environment(including I/C)
- Assess RMM & determine nature, timing and extent of procedures
- Perform tests of controls
- Perform substantive procedures
- Formulate an opinion
- Issue audit report
What additional asessments are needed for an issuer’s internal controls when compared to a non issuer’s?
- Need an understanding of I/C to assess RMM(Public & non public)
- Integrated audit - Needs sufficient evidence to support an opinion on I/C over financial reporting(ICFR) *Only Public companies
What are the components of internal control?
“CRIME”
- Control Activities
- Risk Assessment
- Info & Communication
- Monitoring
- Environment(control environment)
What are control activities?
Policies procedures used to ensure that management directives are carried out:
“PIPS”
- Performance Reviews
- Information Processing
- Physical Controls
- Seg. of Duties
What duties should be segregated for internal control purposes?
- Authorization
- Recording(posting)
- Custody
- Comparisons
Describe a control environment:
The tone of an organization; set by the following factors:
“CHOPPER”
- Commitment to competence
- HR Policies
- Org. Structure
- Participation of those charged w/ gov
- Philosophy of mgmt
- Ethical Values
- Responsibility assignment
How often must an auditor test the operating effectiveness of I/C, if he plans to use the evidence about operating effectiveness from a prior audit and the controls have not changed?
At least every 3 years.
What are the four approaches for testing the effectiveness of the design/operation of internal controls?
“RIIO”
- Reperformance
- Inspection
- Inquiry
- Observation
