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Wiley CPAexcel Exam Review 2014 Focus Notes: Auditing and Attestation by Ray Whittington

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Focus on: Understanding Internal Control and Assessing Control Risk—Module 3

CONSIDERATION OF INTERNAL CONTROL

Consideration of internal control is necessary to determine nature, timing, and extent of substantive tests

Internal control is defined as a process—effected by an entity’s board of directors, management, and other personnel—designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

(a) Reliability of financial reporting,
(b) Effectiveness and efficiency of operations, and
(c) Compliance with applicable laws and regulations.

Related to the above is the safeguarding of assets.

Components of Internal Control

Internal control consists of five interrelated components

  • Control Activities
  • Risk Assessment
  • Information and Communication
  • Monitoring
  • Control Environment

Control Activities

Control activities are policies and procedures that help ensure that management directives are followed

The auditor will be concerned about

  • Performance reviews—comparisons of actual performance to expectations
  • Information processing—checks on accuracy, completeness, and authorization of transactions
  • Physical controls—safeguarding assets and controlling access to records
  • Segregation of duties—reducing opportunities for one individual to commit errors and conceal them

    I say! These control activities are pips

Duties requiring segregation are

  • Authorization
  • Recording
  • Custody

    ARC

Risk Assessment

Risk assessment addresses how the company identifies, ...

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