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Auditing and Internal Control IT Auditing, Hall, 4e
Auditing and Internal Control IT Auditing, Hall, 4e
IT Auditing, Hall, 4e
Learning Objectives
Material Reasonable
misstatements Assurance
2. The auditor must have 2. The auditor must gain a 2. The report must identify those
independence of mental sufficient understanding of the circumstances in which generally
attitude. internal control structure. accepted accounting principles were
not applied.
3. The auditor must exercise 3. The auditor must obtain 3. The report must identify any items
due professional care in the sufficient, competent evidence. that do not have adequate
performance of the audit and informative disclosures.
the preparation of the report.
Existence or occurrence Inventories listed on the balance Observe the counting of physical inventory.
sheet exist.
Rights and obligations Plant \and equipment listed in the Review purchase agreements, insurance
balance sheet are owned by the policies, and related documents.
entity.
Valuation or allocation Accounts receivable are stated at net Review entity’s aging of accounts and
realizable value. evaluate the adequacy of the allowance for
uncorrectable accounts.
Presentation and disclosure Contingencies not reported in Obtain information from entity lawyers
financial accounts are properly about the status of litigation and estimates
disclosed in footnotes. of potential loss.
Audit Risk
o First step is audit planning which includes the analysis of audit risk.
o Techniques for gathering evidence include questionnaires, management
interviews, reviewing system documentation and observing activities.
o Objective of tests of controls is to determine if adequate controls
are in place and functioning.
o Third phase focuses on financial data and a detailed investigation of
specific account balances and transactions through substantive
tests.
o Files may be extracted using Computer-Assisted-Audit Tools and
Techniques (CAATTs) software.
Internal Control
o Management required by law to establish and maintain
adequate system of internal controls.
o Brief history of internal control legislation:
o SEC Acts of 1933 and 1934.
o Copyright Law of 1976.
o Foreign Corrupt Practices (FCPA) of 1977 requires companies
registered with the SEC to:
o Keep records that fairly and reasonably reflect firm’s transactions and
financial position.
o Maintain a system of internal control that provides reasonable
assurance that organization objectives are met.
o Committee of Sponsoring Organizations - 1992
Internal Control