The Role of Internal Controls in Audit Effectiveness and Risk Assessment

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The Role of Internal Controls in Audit Effectiveness and Risk Assessment Week 3 – DQ 2 Why do auditors have to consider the internal controls of the organization? What are some key elements of internal control? Which are the most important? How will the auditor have to modify the audit program if the internal controls are deemed inadequate to support management assertions? Response #1 Auditors have to consider an organizations internal control so the audit will be effective, efficient, and so they will have awareness of where misstatements might occur. An auditor must understand the procedures and policies and the length of operation per each component of internal control; control environment, risk assessment, information and communication, control archives, monitoring, and antifraud programs and control. The key elements of internal control are: 1. Identify the types of potential misstatements that may occur 2. Understand the factors that affect the risk of material misstatement 3. Design further audit procedures (Boynton and Johnson, 2006, p. 422). The most important of the elements is designing further audit procedures. The first two elements feed to the point, they will tell if the auditor has adequate information to assess material misstatement per management’s assertions. The audit program would be modified if the auditor finds inadequacies within any of the internal control components. For an example, if there is no supporting documentation in the control archives (log book or some sort of tracking), how would the organization know they have acc urately archived all files correctly and to 100% of their item list. The auditor would have to conduct more
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