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 The control environment represents the tone set by management of an organization that influences the control consciousness of its people It is the foundation for all other components of internal control providing discipline and structure A strong control environment comprises numerous factors that work together to enhance the control consciousness of people who implement controls throughout an entity Among these are the following AU 319 25 Integrity and ethical values Commitment to competence Board of directors and audit committee Management s philosophy and operating style Organizational structure Assignment of authority and responsibility Human resource policies and practices I think the integrity and ethical values are the most important because ethics will make the business more successful ethics pay that ethical behavior is good business Response 2 Auditors have to consider internal controls because SAS 112 requires auditors to asses organization risks understand controls determine whether controls would be adequate if fully utilized and test whether controls are working Some key elements of internal controls are environmental control which refers to management and employee attitude and behavior risk assessments incorporates a businesses ability to analyze business risks estimate their importance and react or act accordingly control procedures which simply provides the stated methods for carrying out the environmental controls the risk assessment the monitoring and the information communication that must take place in the internal control process monitoring information and communication is for effectiveness and necessity is the feedback element of the process Each area contributes an essential part of the control system as a whole and without all of the key elements present the controls and control system does not work If the internal controls are deemed inadequate to support management assertions the auditor will have to modify the audit program but include the management in gathering information concerning the internal control systems without impairing their objectivity or judgment The auditor must perform procedures to obtain sufficient evidence regarding the operation and design of the internal control and therefore reduce the attestation risks to low levels The auditor may consider the management s results and tests but not rely on them as principle evidence In adequate management assertion and documentation of internal controls may result to significant deficiency or material weakness
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