Understanding of the Internal Control Components (Business Homework)

Understanding of the Internal Control Components

Definition of internal control

Internal control is a series of interlocking actions stacked on top of a company’s usual operating methods to guard assets, reduce errors, and guarantee that operations are accomplished in an accepted manner (Michigan, 2021). (Business Homework)

ORDER NOW

Understanding of the internal control components

An auditor must have a sufficient and meaningful understanding of the internal control components existent in the client business to perform an audit. Should understand it by executing many processes that are used to understand the design of the relevant controls and may have an influence on the materiality of the organization’s financial statements (Younas, & Kassim, 2019, pp. 1-6). It is essential to understand these internal controls in the audit planning process since they can utilize them to identify the possibility of substantial mistakes. Factors leading to material errors influence the design and scope of the substantive procedures and should use method and content of the control test in the audit (Younas, & Kassim, 2019, pp. 1-6). After the auditors have gotten a thorough understanding of the internal control components, the components directly connected to the financial statements’ reliability may investigate transparency, timeliness, and accuracy, and an audit plan focusing on these crucial components can be prepared (Younas, & Kassim, 2019, pp. 1-6).

Auditor’s documentation requirements

During the audit process, the auditor must document the requirements for the organization’s internal controls and the evaluated level of control risk. Documentation requirements for internal controls include control environment documentation and risk assessment for financial statement assertions (Amran, & Mustapa, 2018). It also provides monitoring of internal controls, control activities, information, and communication. For the documentation requirements of assessed control risk, the auditor should document the reason and conclusion behind the level of unity. To chronicle the process, one can use working papers, narrative descriptions, and memos (Amran, & Mustapa, 2018).

References

Amran, N. A., & Mustapa, I. R. (2018). The WAFA Group: Case Studies in Auditing (UUM Press). UUM Press.

Michigan Technological University. (2021). Internal Audit. What Is Internal Control? Retrieved from https://www.mtu.edu/internal-audit/control/what-is/

Younas, M. A., & Kassim, A. A. M. (2019). Essentiality of internal control in Audit process. International Journal of Business and Applied Social Science, 5(11), 1-6.