An Auditor Is Required to Obtain a Sufficient Understanding of Internal

question 8

Essay

An auditor is required to obtain a sufficient understanding of internal control ---to plan the audit.This requirement encompasses obtaining an understanding of the control environment, the accounting system, and the control policies and procedures.
Required:
A) What are some of the reasons for obtaining an understanding of an audit client's internal control?
B) What audit work is required for an auditor to be able to assess control risk below maximum?
C) Should an auditor always try to obtain enough evidence to be able to assess control risk below maximum? Explain.

• A) What are some of the reasons for obtaining an understanding of an audit client's internal control?
• B) What audit work is required for an auditor to be able to assess control risk below maximum?
• C) Should an auditor always try to obtain enough evidence to be able to assess control risk below maximum? Explain.

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Definitions:

Audited Financial Statements

Financial reports that have been examined and verified by an independent auditor to affirm their accuracy and conformity with accounting standards.

Annual Report

A comprehensive report on a company's activities throughout the preceding year, intended to give shareholders and other interested people information about the company's performance and financial position.

SEC Regulation

Refers to official rules and laws that govern securities and financial markets, enforced by the U.S. Securities and Exchange Commission.

Income Statements

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and profits or losses.