- 12 Marks
AA – May 2019 – L2 – Q2b – Audit and Assurance Evidence
Explains the components of internal control per ISA 315 and reasons for focusing on internal controls during substantive testing.
Question
b) For many firms, the audit evidence that they obtain does not focus on a client’s internal systems and controls; rather, the work is focused on the substantive testing of the transactions and balances which make up the entity’s accounts. Consequently, many practitioners do not believe that they are required to spend much time documenting a client’s internal systems and controls or indeed to test whether any of the controls actually operate in practice in any detail. However, to ignore this area will mean that the requirements of ISA 315: Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment are not complied with.
Required:
i) Explain the components of an internal control system in line with ISA 315.
(5 marks)
ii) Why is the work on internal controls necessary when auditors take the substantive approach?
(4 marks)
iii) Why is the work on internal controls necessary when auditors take the substantive approach?
(4 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Audit evidence, Internal Control Components, ISA 315, Substantive Testing
- Level: Level 2
- Topic: Audit and Assurance Evidence
- Series: MAY 2019