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Diff between sufficient understanding & reliable evidence

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Auditors should understand the five components of internal control that are sufficient to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures. When performing the risk assessment of a potential client, auditors should use sufficient understanding to come to this conclusion. Explain the difference between sufficient understanding and satisfactory and reliable evidence. What steps does an auditor take to determine the overall sufficiency and appropriateness of evidence? 250 Words.

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The five components of internal control are
1. Control environment (tone at the top, entity-level controls)
2. Risk assessment (knowing where you are most vulnerable)
3. Control activities (account-level controls, reconciliations, segregation of duties, passwords and so forth)
4. Communication and information (reporting the activities of the business, including financial reporting)
5. Monitoring (ways of finding out if the controls are ...

Solution Summary

Your discussion is 256 words and gives you the five components of internal control (with a reference), a discussion about how understanding and evidence differ and a discussion about how you know when evidence is sufficient.

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One of the common misconceptions in auditing relates to the difference between accurate and fairly stated. Accuracy implies 100%, which would mean from an audit perspective that the auditor would have to test 100% of the transactions. Well we know that auditing is based upon sampling and that there are materiality limits that are calculated by the auditor as well. Therefore from a professional perspective we use the term fairly stated in all material aspects. This implies that not 100% of the transactions were tested, but rather, there was sufficient evidence found that could support the financial statements as being fairly stated.

This difference is important to understand as it tells you what the objective of a financial statement is and what the client and the general public should expect. Any thoughts on this topic?

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