Introducing 

Prezi AI.

Your new presentation assistant.

Refine, enhance, and tailor your content, source relevant images, and edit visuals quicker than ever before.

Loading…
Transcript

Deloitte LLP

Walkthroughs and D&I

Testing Design Effectiveness

AS 5.42

The design effectiveness of controls is determined by the following:

  • Is the control operating as described by personnel of the appropriate authority?
  • Is the control owner competent enough to perform the control?
  • Does the control satisfies the company's control objectives?
  • Does it prevent or detect errors or fraud that could result in material misstatements in the financial statements

Procedures to Test Design Effectiveness

AS 5.43

Note: Walkthroughs that include these procedures ordinarily are sufficient to evaluate design effectiveness

Thank you

Current View of Control Apportion

Control Roll Forwards

  • Still leaves the potential to make more substantive selections if controls fail - "not relying on control"

Concluding on controls must be done at miniumum 4-3 months prior to the as-of date.

New CW Controls Roll Forward

  • Roll forward each site to 9/30 and conclude on controls
  • Document all samples as of 9/30 (i.e 5 for weekly) as required by AAM 4200.2
  • Conclusion can be made for a period less than one year [PCAOB AS 5.B2]
  • Thus, as of 9/30 we can reasonably conclude all substantive testing completed to date can rely on controls
  • For the period 10/1-12/31 we obtain sufficient evidence as describe in [PCAOB AS 5.56]
  • Conservatively we make 1-2 more selections to corroborate our 9/30 conclusion
  • As AAM 4200.2 is a minimum requirement making additional selections would be fine
  • If any errors are found in these selections we run a substantive test on the Q4 sample alone not relying on controls and {tm} as to why our 9/30 selections can still reasonably be said to rely on controls

Purpose of Walk-throughs

AS No. 5.34

To understand the likely sources of misstatements, and aid in selecting the controls to test. The auditor should achieve the following objectives:

  • Understand the flow of transactions related to relevant assertions, including how transactions are initiated, authorized, processed, and recorded
  • Identify the points within the company's processes where a misstatement—including fraud—could arise that, individually or in combination with other misstatements, would be material

Questions

  • Identify the controls that management has implemented to address potential misstatements

Selecting Controls to Test

AS 5.39-41

  • It is neither necessary to test all controls related to a relevant assertion nor necessary to test redundant controls, unless redundancy is itself a control objective
  • Identify controls over the prevention / detection of unauthorized acquisition, use, or disposition of the company's assets that could result in a material misstatement of the financial statements.
  • Test only the controls that pertain to our conclusion about how the company's controls address the assessed risk of misstatement to each relevant assertion.
  • Selecting a control for testing depends on which controls, individually or in combination, address the assessed risk of misstatement to a given relevant assertion

Top-Down Approach

A top-down should be used to select controls for testing.

Achieving Objectives

AS No 5.37

  • Walkthroughs will frequently be the most effective way of achieving the aforementioned objectives
  • Performing a walkthrough, the auditor will:
  • follow a transaction from origination through the company's processes to the company's financial records
  • Inquire about the process / control
  • Observe the process / control being performed
  • Inspect relevant documents
  • Re-perform the control (highest level of assurance)

Conducting Walkthroughs

AS No 5.37

In performing a walkthrough an auditor:

  • Questions the company's personnel about their understanding of the company's processes and controls.
  • Asks probing questions in order to gain an understanding of the process and identify points at which a control is missing or not designed effectively.
  • Changes in the process year over year?
  • Threshold of investigation?
  • Significant transactions?

Examples

Introduction

PCAOB Auditing Standard 5

  • ICFR provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
  • If one or more material weaknesses exist, the company's internal control over financial reporting cannot be considered effective
  • In order to gain an understanding of controls auditors will conduct a walkthrough and test the design and implementation of the controls

Example of 6/30 AR control

  • Procedures the auditor performs to test design effectiveness include a mix of:
  • inquiry of appropriate personnel
  • observation of the company's operations
  • inspection of relevant documentation

G720.02

If we obtain Audit Evidence about the operating effectiveness of Controls during an interim period, we shall:

  • Obtain Audit Evidence about significant changes to Controls subsequent to the interim period
  • Determine the additional Audit Evidence to be obtained for the remaining period. [PCAOB AS 5.56]

Significant Accounts &

Disclosures

  • Evaluate the qualitative & quantitative risk factors related to the financial statement line items and disclosures
  • Susceptibility to misstatement due to errors or fraud

Examples:

  • Size & composition of the account
  • related party transactions

Entity Level Controls

  • Test ELC's to support the conclusion that the company has effective ICFR.
  • Our evaluation of ELC's can result in increasing or decreasing testing.
  • Control Environment
  • Management override

Examples:

Financial Statement Level

  • auditor's understanding of the overall risks to internal control over financial reporting
  • Requesting 13 selections for year-end
  • Takes time to coordinate with client
  • Delayed response from client
  • Wasted time with documentation / most info sent in piece meal
Learn more about creating dynamic, engaging presentations with Prezi