Exam 10: Audit Strategy and Audit Program

Correct Answer:

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It is likely that for both the first and second audit, the auditor will be relying upon internal controls and conducting a combined audit. To enable reliance, internal controls need to be thoroughly documented, so that assessments of control risk can be prepared for each account and for each transaction-related audit objective. It is possible that the client where flowcharts are to be prepared manually is a smaller client, and the number of possible key controls is small. Where there are a larger number of possible controls, it is more effective to use automated techniques so that the software can help ensure that each audit assertion has been properly considered for each material account, or where there is a risk of material misstatement for the account.
The last client, where only a brief, one-page description is required, is probably an owner-managed client where the primary control is exercised by the owner-manager. In that case, there will be few other key controls, as lack of segregation of duties in a small business means that controls executed by individual accounting employees may not be effective.