In this chapter, the learning objectives are: Understand the importance of internal control to management and auditors, know the definition of internal control, know what controls are relevant to the audit, understand the effect of information technology on internal control, be familiar with the components of internal control, understand how to plan an audit strategy, know how to develop an understanding of an entity's internal control,. | Internal Control in a Financial Statement Audit Chapter Six Internal Control Management has the responsibility to maintain controls that provides reasonable assurance that adequate control exists over the entity’s assets and records. The Internal Control System should: -ensure that assets and records are safeguarded -create an environment in which efficiency and effectiveness are encouraged and monitored -generate reliable information for decision-making The auditor needs assurance about the reliability of the data generated by the information system. Internal Control The auditor uses risk assessment procedures to -obtain an understanding of the entity’s internal control -identify the types of potential misstatements -ascertain factors that affect the risk of material misstatement -design tests of controls and substantive procedures The auditor’s understanding of the internal control is a major factor in determining the overall audit strategy. The auditor has a responsibility to: (1) obtain an understanding of internal control and (2) assess control risk. Internal Control Reliability of Financial Reporting Effectiveness & Efficiency of Operations Compliance with Laws & Regulations Objectives Controls Relevant to the Audit Generally, internal controls pertaining to the preparation of financial statements for external purposes are relevant to an audit. Reliability of Financial Reporting Effectiveness & Efficiency of Operations Compliance with Laws & Regulations Objectives Controls Relevant to the Audit Controls relating to operations and compliance objectives may be relevant when they relate to data the auditor uses to apply auditing procedures. Reliability of Financial Reporting Effectiveness & Efficiency of Operations Compliance with Laws & Regulations Objectives The Effect of Information Technology on Internal Control Components of Internal Control Control Environment Entity’s Risk Assessment Process Information System and Related . | Internal Control in a Financial Statement Audit Chapter Six Internal Control Management has the responsibility to maintain controls that provides reasonable assurance that adequate control exists over the entity’s assets and records. The Internal Control System should: -ensure that assets and records are safeguarded -create an environment in which efficiency and effectiveness are encouraged and monitored -generate reliable information for decision-making The auditor needs assurance about the reliability of the data generated by the information system. Internal Control The auditor uses risk assessment procedures to -obtain an understanding of the entity’s internal control -identify the types of potential misstatements -ascertain factors that affect the risk of material misstatement -design tests of controls and substantive procedures The auditor’s understanding of the internal control is a major factor in determining the overall audit strategy. The auditor has a responsibility
