Internal Control & Audit Evidence

A. Respond to the following question regarding internal control

1. What is the definition of internal control?

2. What is the definition of ‘control risk’? What is the auditor’s responsibility in connecting with control risk?

3. Why does the independent auditor assess the level of control risk that is presented in the operations of the reporting entity?

4. What is the minimum level of work that an auditor must do in connection with the assessment of control risk? How can the work be documented?

5. What are the five components of internal control that an auditor must come to understand?

6. To obtain sufficient competent evidence to substantiate an account balance, the auditor performs substantive testing. Substantive testing is designed to reduce detection risk so that actual auditing risk will be decreased to an acceptable level for one or more assertions. What are three types of substantive testing?

7. Which of the five management assertions is being tested when an auditor starts with a reported balance and seek support through internal documentation?

8. What are some of the steps that an auditor takes after an audit engagement has been accepted?

9. What is an audit program? Why is an audit program required? When is the audit program finalized?

10. A successor auditor will seek to talk with the predecessor auditor. How often is then done? When is this done? If the reporting company will not give permission for the successor auditor to talk with the predecessor auditor, what should the successor auditor do?

B. According to the text, auditors rely on the audit risk formula to determine the types and amount of audit evidence to collect in order to keep the overall audit risk of engagements. Explain Audit Evidence.