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Evaluating Internal control over financial reporting - Coggle Diagram
Evaluating Internal control over financial reporting
Audit work re. internal control over financial reporting
Understand the components of internal control over financial reporting
Document the system
Narratives
Flowchart
Questionnaires
3.Test the system for deficiencies in design and perform test of controls to find deficiencies in implementation
Report deficiencies for management
Decide extent of substantive testing
If IC is strong, less substantive
If IC is weak, more substantive
Objective of internal control relevent to audit
Avoid frauds, errors, wastes, and inefficiencies
Max. accuracy of all records, data, and statements
Enable auditor to determine the reliance they can place on various systems
Inform management about weaknesses promptly
Enabling planning of audit
Understanding components of internal control
Components of internal control over financial reporting
Control environment
Entity's risk assessment process
Info system and communication
Control activities
Monitoring of control
Computer controls
General control - control on IT system
Application control - relate to transaction and standing data (data for long-term use)
Input control
Processing control
Output control
Limitation of internal control system
Controls are expensive compared to its benefit
Overidding of control by management
Control system are not geared up for unusual transactions
Possibility of human errors
Possibility of fraud due to collusion
Obsolescence of control
Responsibility of various party re. ICS
Management: Design and implement effective ICS
BOD: ensure that effective ICS is designed, implemented, and monitored by the management
Auditor: review and report on ICS and recommend change