Paper at least 3 pages in APA style
Auditors often have to test the effectiveness of infrequently used operating controls, such as the monthly closing and reconciliation processes. Determining the appropriate extent of testing of such controls presents unique challenges. Visit the website for the CPA Journal (Links to an external site.)(www.cpajournal.com) and read the article “Auditing Internal Controls in Small Populations” by Julian Jacoby and Neal Hitzig in the Ashford University Library.
Discuss the nature of the controls and why it is important for the auditor to test them. Also discuss the factors the auditor should consider in determining the extent of the tests of controls. Explain the sampling approach that the auditors recommend.
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The onset of the Sarbanes-Oxley Act of 2002 saw audit forums being held across the country to discuss the way forward with the new directive of “testing the effectiveness of internal controls of small populations so as to report on the same over financial reporting” (Jacoby & Hitzig, 2011). The guidance is in AAG, “Audit Sampling” of the AICPA. The AU318.46 “Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained” contains all concepts that guide testing of internal controls.
The objective of testing controls in an audit is usually to examine the risk of control on specific assertions (PCAOB, 2018). Therefore, audit evidence is required to ensure that the controls were actually well utilized during the whole period which the auditor is planning to rely on the controls.
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