Control risk – Test of Controls

Discuss the relationships among the initial assessed control risk, test of controls, and substantive tests of transactions for cash disbursements, and the tests of details of cash balances. Provide one example in which the conclusions reached about internal controls in cash disbursements will affect the tests of cash balances.
Also, make recommendations about when to test for further material fraud.

Solution Preview

A control risk can be defined as the possibility that a substantial blunder within an entity may not be noticed by the internal control structure that is put in place, within a certain organization. With such awareness, such an entity approaches an auditor who then performs what is known as the initial assessment of control risk.

(340 words)