The top-down attack is a manner that hearers should utilize to choose which tests they should implement in the audit of internal control over fiscal coverage. This attack begins at the fiscal statement degree, and so take hearer ‘s attending to the entity-level control. Hearers will acquire the sensible possibility of material misstatement to the fiscal statements and related revelations by utilizing this attack. Testing entity-level controls is important to hearers, because the company ‘s effectivity of internal control over fiscal coverage can be derived from this trial.
Entity-level controls can be performed based on different attacks. Some of them can impact other controls that hearers selected, such as forestalling or observing some misstatements ; some can supervise the effectivity of other controls ; whereas some can execute a more precise work on observing the misstatements, and lead to a more efficiency bar. There are 8 different controls included in the entity-level controls. The first is controls related to the control environment. Control environment is an of import component to hearers in measuring the house ‘s internal control over fiscal coverage, some facets like direction ‘s doctrine, runing manners, ethical values particularly among upper directions are important to see and measure. The 2nd 1 is controls over direction override. To some extent, the effectivity of internal control can be assessed by the engagement of top direction in the fiscal control. The 3rd one is the company ‘s hazard appraisal procedure. The 4th one is centralized processing and controls, including shared service environments. The 5th 1 is controls to supervise consequences of operations. The 6th 1 is controls to supervise other controls. The 7th 1 is controls over the period-end fiscal coverage procedure. This is an rating of the processs that used at the period-end fiscal coverage, since people are more likely to modify the old informations at that clip. The last one is policies that address important concern control and hazard direction patterns.
It is hearer ‘s duties to place important histories and revelations and their relevant averments. The appraisal of fiscal statement averments can be attacks from being or happening, completeness, rating or allotment, rights and duties, and presentation and revelation. While the rating in qualitative and quantitative hazard factors related to the designation of important histories and revelations and relevant averments should be attacks from size and composing of the history, susceptibleness to misstatement due to mistakes or fraud, volume of activity, complexness, and homogeneousness of the single minutess processed through the history or reflected in the revelation, accounting and coverage complexnesss associated with the history or revelation, exposure to losingss in the history, possibility of important contingent liabilities originating from the activities reflected in the history or revelation, being of related party minutess in the history, and alterations from the anterior period in history or revelation features. It is besides important for hearers to place some likely beginnings of possible misstatements.
Hearers should following four aims when they are seeking to come up with the likely beginnings of possible misstatements. The first is to understand the flow of minutess, such as how the minutess initiated, recorded or authorized. The 2nd is to verify that the hearer has identified the points within the company ‘s procedures at which a misstatement. The 3rd is to understand the control from the direction and do certain they are non override. The last 1 is to detect the unauthorised actions to the information from the top direction. It is required for the hearer to demo they have performed all the above aims in any manner. In add-on to that, hearers should besides be cognizant of information engineering system. They need to understand how the minutess flow in the system. A walkthrough is a common and effectual manner for hearers to accomplish those aims. It is efficient for hearers since they can understand the process by looking at them, if they have inquiry, they can inquire instantly.
Hearers should choose which control to be tested by turn toing what sort of decision they need. The consequences from one trial may associate to some other averments. Therefore, hearers should choose the trials based on the assessed hazard of misstatement to a given relevant averment.
Material Weakness versus Significant Deficiency
Both material failing and important lack are a lack, or a combination of lacks, in internal control over fiscal coverage. By measuring the lack on the degree of item and grade of confidence, stuff control is more terrible than important lack. It indicated that there is a sensible possibility that misstatements will happen due to the absence of effectual internal control. Even though the important lack is non serious, it still needs the direction ‘s attending.
Indexs of stuff failings:
Designation of fraud on the senior direction,
Correctionss to the old fiscal statements due to misstatements,
Designation of misstatements by the hearers, but it was non detected by the company ‘s internal control,
Inefficiency of the company ‘s audit commission
During the audit, if the hearers identified any material failing, they need to pass on to direction and audit commission in composing before they issue an auditing study. If they identified any important lacks, they need to pass on with audit commission in authorship ; if they identified any inefficiency of the audit commission, they need to pass on with board of managers in composing about this decision. In add-on, the hearers besides need to pass on to direction about all the lacks in internal control over fiscal study in authorship, the information they need to advert here are less serious and do non necessitate to be insistent. Hearers do non necessitate to execute any processs if they already identify or cognizant of the lacks. Even though the hearers did non happen any material failing, they are non allowed to state there is no material failing involved in the internal control over fiscal coverage. If there is any illegal activities were identified by the hearer, the hearer should find their duties under certain Acts. The material failing should be included in the scrutinizing study whereas the important lack merely necessitate to describe and communicated with directions, non foreigners.