Auditing and Internal Control Issues

Author: Pat Patterson

CPE Credit:  2 hours for CPAs

This session will review internal control from the Auditor’s point of view to study and evaluate the system of internal control. To obtain an adequate understanding of the internal control system, that must be tested, the Auditor must determine whether audit is possible, if yes, then he/she should determine the scope of audit.

The coronavirus pandemic (COVID-19) has raised several questions about how to properly audit financial statements when internal controls have changed due to dramatic changes in an entity’s business volume and activities.

The auditing standards (GAAS) require the auditor to obtain an understanding of controls that are relevant to the audit and assess whether they are designed effectively to prevent or at least detect and correct material misstatements that might be made in the financial statements. Then the auditor is required to determine whether they’ve been implemented. Please note that this course considers audits performed under generally accepted auditing standards (GAAS) and not audits under PCAOB standards. New standards will be dealt with and explained for internal controls, technology, and professional skepticism.

GAAS requires auditors to identify where and how the financial statements may possibly carry a higher risk of being materially misstated. The auditor uses that understanding to help design what further audit procedures might be effective in detecting any material misstatement that may exist.

Those further audit procedures can either be tests of controls or substantive audit procedures. I’ll come back to tests of controls later, but it’s important in this environment for auditors to be creative and innovative in their audit approaches. That may involve performing procedures remotely, and it is predicated on understanding how the client is processing and controlling its financial accounting processes and working transactions through the financial statements.
The auditor needs to understand the entity’s internal control before determining whether procedures that might be performed remotely would truly be effective.

Publication Date: June 2021

Designed For
A CPA professional who is auditing an entity, someone in an entity’s internal audit section, management that is responsible for an internal control system, and anyone else who needs to know the details and importance of internal control.

Topics Covered

  • AICPA Auditing Standards Update: 2021
  • Changes to SASs' Effective Dates
  • Relatively New Audit Standards
  • Risk Assessment Procedures and Related Activities
  • Understanding the Entity and Its Environment, Including the Entity's Internal Control
  • The Entity's Internal Control
  • Identifying and Assessing the Risks of Material Misstatement
  • Risks That Require Special Audit Consideration
  • Risk Assessment Procedures and Related Activities
  • Discussion Among the Engagement Team
  • The Entity and Its Environment
  • General Nature and Characteristics of Internal Control
  • AU‐C Section 700: Forming an Opinion and Reporting on Financial Statements
  • Auditor's Report
  • Illustration No. 1: An Auditor's Report on Comparative Financial Statements Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America
  • Illustration 2: An Auditor's Report on Comparative Financial Statements Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America, Including Communication of Key Audit Matters
  • New SASs
  • The Changes for Auditors
  • Changes to Attestation from the Auditing Standards Board
  • COVID‐19 ‐ Going Concerns, Emphasis of Matter, and Scope Limitations
  • Subsequent Events and COVID‐19: Past, Present, and Future
  • Risks and Uncertainties Plus COVID‐19

Learning Objectives

  • Identify updates on Internal Controls and AICPA Auditing Standards
  • Identify updates on Internal Control and audit reports
  • Recognize internal control and COVID‐19 Issues
  • Differentiate effective dates of SAS's
  • Recognize the auditor's requirement relevant to understanding an entity's control activities
  • Identify true statements regarding risk assessment procedures
  • Identify true statements regarding internal controls
  • Differentiate what section of the auditor's report is the auditor's opinion under AU-C 700
  • Describe where the key audit matters paragraph in the auditor's report
  • Recognize the changes included in SAS No. 142
  • Identify financial reporting considerations related to subsequent events

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Auditing (2 hours)

Program Prerequisites
Basic understanding of GAAS.

Advance Preparation
None

Registration Options
Quantity
Fees
Regular Fee $59.00

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