Auditors' Consideration of Client's Internal Control and

School: University of California, Irvine - Course: ACCOUNTING AUDITING - Subject: Accounting

Week 4 Assignment Auditors are required to consider a client's internal control. a. Describe in details two purposes of the auditors' consideration of a client's internal control and explain the importance of each. An auditor must take into consideration their clients' internal control because it is integral to both assessing the risks of material misstatement in the financial statements and to assess the design of the internal controls to determine if the audit procedures in place are extensive enough. It is important to see if there are any material misstatements in the financial statements because this helps determine if the information provided in the financial statement is correct. This also helps determine if the financial statements are following the correct accounting procedures or terms. Understanding these material misstatements is crucial for the auditors' understanding of the clients' internal control. It is important for an auditor to assess the design of the internal controls to determine if the audit procedures in place are extensive enough because it is supposed to help identify or red flag any suspicious or potentially suspicious activities. A strong design would prevent these issues from happening before it does happen. Essentially the best problem is to have no problem at all. b. Even the best internal control has certain limitations. Identify and describe three of those limitations and explain the importance of each of them. 3 limitations in an internal control system is carelessness, top management may override the system, and cost considerations often limit the effectiveness of the design of the structure. Carelessness can lead to a misunderstanding of instructions, which are both detrimental to internal controls. Carelessly inputting the incorrect numbers or inputting numbers in the incorrect places would defeat the best internal control systems. Top management also has a way of effective the best internal control systems. When top management override the system for their benefit instead of the benefit of the company. This would defeat the purpose of the internal controls that were set forth in the first place.

Cost considerations are also a deterrent to the best internal controls. Maintaining and creating internal controls can be a very expensive process and procedure. Many times companies will have to eventually say no or figure out a cheaper solution to either a current process or a process that needs to be implemented. Discussion 4 1) Many auditors use generalized audit software to assist them in the examination of clients' computer records. a. Describe in details what is meant by generalized audit software and quote two examples of such software.