Internal Controls CAS 315 PDF

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About CAS 315 on Internal Controls, relevant to many cases covered in class. ...

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Internal Controls CAS 315 

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Must understand o Identify risks (increases in control risk) o Document process and the control activities Test design (how are the controls designed) o Would they detect the errors? (in theory)  Inquiry  Walkthrough Test operating effectiveness (rely) o Did they work? (actually test the controls) o This is where you would reduce your substantive testing o Control activities.  Authorization  check signing limits, capital assets approved by the board  EXAMPLE: examine the purchase order and agree it to the board minutes, equally throughout the year for the sample of assets.  Performance reviews manager reviews AFDA after its been done by accounts payable clerk, manager reviews all bank recs.  Information processing (IT controls)  EXAMPLE: examine exception reports to see who made changes, examine that a document is automatically updated from account to GL.  Physical controls  camera, passwords.  EXAMPLE: observe that the server is in a locked room that no one can get in, observe that passwords need to be changed on a regular basis.  Segregation of duties  EXAMPLE: observe one person do the work and the other  Verbs to use:  Observe, examine, IT test When writing audit procedures you have to talk about: o Nature  what are you doing? Document or the object. o Timing  when are you going to do it? o Extent  how many? Practice writing out how to test controls. IF you find a control weakness or a deficiency: (in a management letter) o Weakness: case facts o Implications: why is this an issue? Why could it increase RRM? How could an error occur? o Recommendation: fix. o + audit procedures: that insure that the implication didn’t happen.

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COMMUNICATED to those charged with governance. (board of directors or the audit committee) If you find an error: o Investigate if the weakness is isolated, pervasive? o Expand your sample to determine if it an isolated error. o If you cant rely on control, find another compensating control. o And/or you increase your substantive tests....