Jacob is the sole shareholder, supervisor and manager of a small design company. The company has not had an audit in prior years, however, this year, Jacob obtained a loan from the a large Canadian bank and is required to have an audit of the financial statements.

You begin by asking about controls and procedures at the company, Jacob got pretty frustrated.

Why are you asking all of these questions? It takes too much time away from my staff to answer these questions!

You have a scheduled a meeting to discuss the following items :

1. Why auditors are concerned about internal controls.

2. Why auditors are required to be concerned about internal controls.

3. What you need to do to understand internal controls.

4. What you will do once you have documented your understanding of internal controls.

Required:

Explain what you will say to Jacob.

Why would the bank require an audit