.seventy six The failure to acquire written representations from administration, together with management’s refusal to furnish them, constitutes a limitation on the scope of the audit. As mentioned additional in paragraph .C3, when the scope of the audit is proscribed, the auditor ought to either withdraw from the engagement or disclaim an opinion. Further, the auditor ought to evaluate the effects of administration’s refusal on his or her ability to depend on different representations, including these obtained within the audit of the corporate’s monetary statements. .49 The evidence offered by the auditor’s checks of the effectiveness of controls relies upon upon the mix of the character, timing, and extent of the auditor’s procedures. Further, for a person management, different combos of the character, timing, and extent of testing could provide adequate evidence in relation to the chance related to the control. Performing walkthroughs will regularly be the simplest means of achieving the goals in paragraph .34.
The willpower of whether an account or disclosure is important is based on inherent danger, with out regard to the impact of controls. .83 Because the audit of internal control over monetary reporting does not present the auditor with assurance that he or she has recognized all deficiencies much less extreme than a fabric weak point, the auditor mustn’t problem a report stating that no such deficiencies had been noted during the audit. .78 The auditor should talk, in writing, to management and the audit committee all materials weaknesses identified through the audit. The written communication ought to be made previous to the issuance of the auditor’s report on internal control over monetary reporting. .seventy three If the auditor determines that any required parts of administration’s annual report on inside control over financial reporting are incomplete or improperly offered, the auditor should comply with the direction in paragraph .C2.
.C6 The auditor might issue a report disclaiming an opinion on inner management over monetary reporting as soon as the auditor concludes that a scope limitation will prevent the auditor from acquiring the affordable assurance necessary to specific an opinion. The auditor is not required to carry out any further work previous to issuing a disclaimer when the auditor concludes that he or she will not be able to obtain adequate proof to precise an opinion.
The willpower of whether an assertion is a related assertion relies on inherent danger, without regard to the effect of controls. .A4 Financial statements and associated disclosures refers to a company’s financial statements and notes to the financial statements as offered in accordance with typically accepted accounting ideas (“GAAP”). References to financial statements and related disclosures don’t lengthen to the preparation of management’s dialogue and analysis or different comparable financial info offered outside an organization’s GAAP-basis financial statements and notes. .ninety five The auditor might inquire about and look at different documents for the next period. Paragraphs .01 through .09 of AS 2801, Subsequent Events , present path on subsequent events for a monetary assertion audit that additionally may be useful to the auditor performing an audit of internal management over monetary reporting. Information about the effectiveness of the corporate’s inside management over monetary reporting obtained by way of other engagements.
.57 In subsequent years’ audits, the auditor ought to incorporate data obtained throughout previous audits he or she carried out of the company’s inside management over financial reporting into the choice-making process for determining the nature, timing, and extent of testing necessary. Identify the controls that administration has applied over the prevention or well timed detection of unauthorized acquisition, use, or disposition of the company’s property that might result in a cloth misstatement of the monetary statements. .16 The auditor ought to consider the extent to which she or he will use the work of others to scale back the work the auditor might in any other case perform himself or herself. AS 2605, Consideration of the Internal Audit Function, applies in an built-in audit of the financial statements and inside management over financial reporting. In the ultimate analysis, maintaining the interior management surroundings and related control procedures is an integral part of administration’s obligations.
In performing a walkthrough, the auditor follows a transaction from origination via the corporate’s processes, together with info systems, until it is mirrored in the company’s financial data, utilizing the same paperwork and data know-how that company personnel use. Walkthrough procedures usually embrace a mix of inquiry, statement, inspection of relevant documentation, and re-efficiency of controls. .36 The auditor additionally should understand how IT affects the corporate’s move of transactions. The auditor should apply paragraph .29 and Appendix B of AS 2110, which discuss the impact of data technology on inner control over financial reporting and the risks to evaluate.
.ninety three Changes in inside management over financial reporting or other components that may significantly have an effect on internal control over financial reporting would possibly occur subsequent to the date as of which inner control over monetary reporting is being audited however before the date of the auditor’s report. The auditor should inquire of management whether or not there were any such modifications or components and obtain written representations from management referring to such issues, as described in paragraph .75h. .87 The following instance combined report expressing an unqualified opinion on monetary statements and an unqualified opinion on inside control over financial reporting illustrates the report elements described in this section.
Obtaining a service auditor’s report on controls placed in operation and exams of working effectiveness, or a report on the applying of agreed-upon procedures that describes relevant checks of controls. .B9 To acquire proof about whether or not a specific control is effective, the management have to be tested immediately; the effectiveness of a control cannot be inferred from the absence of misstatements detected by substantive procedures. The absence of misstatements detected by substantive procedures, however, ought to inform the auditor’s risk assessments in figuring out the testing essential to conclude on the effectiveness of a control. .A9 A relevant assertion is a monetary statement assertion that has an affordable possibility of containing a misstatement or misstatements that may cause the monetary statements to be materially misstated.
The auditor’s evaluation of entity-degree controls can lead to increasing or lowering the testing that the auditor otherwise would have carried out on other controls. .06 The audit of inner management over monetary reporting must be integrated with the audit of the monetary statements. The aims of the audits aren’t identical, nevertheless, and the auditor must plan and carry out the work to attain the aims of both audits. .C11 When the auditor decides to make reference to the report of the opposite auditor as a foundation, in part, for his or her opinion on the company’s inside management over monetary reporting, the auditor ought to refer to the report of the other auditor when describing the scope of the audit and when expressing the opinion. .B27 The auditor mustn’t refer to the service auditor’s report when expressing an opinion on internal control over monetary reporting. .B25 The auditor ought to decide whether or not to acquire extra proof concerning the operating effectiveness of controls on the service group based on the procedures performed by administration or the auditor and the results of those procedures and on an evaluation of the next danger factors. As danger will increase, the need for the auditor to acquire extra evidence increases.
In the context of governmental accounting and reporting, the control surroundings has a direct impression on an entity’s capability to collect and present correct financial information. Thus, the interior management setting and related procedures are key areas of concern to an entity’s external auditor.