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Auditing Design

REQUIRED:
(1).Comment on the following: "Auditors must decide, based on cost considerations, whether to test the design effectiveness or operating effectiveness of controls."

(2).Comment on the following: "All controls should be tested either prior to or on the 'as of ' date."

(3).If an adverse internal control report is issued by an auditor, may an unqualified report be issued on the financial statements? Discuss.

Solution Preview

REQUIRED:
(1).Comment on the following: "Auditors must decide, based on cost considerations, whether to test the design effectiveness or operating effectiveness of controls."
The Auditing Standard No 5 of the PCAOB makes it mandatory for the external auditor to assess the design and effectiveness of selected internal controls related to significant accounts and relevant assertions so that material misstatements are not made. So, the auditors must test the design and effectiveness of the controls. Cost considerations should not enter this decision.
It is mandatory for the auditor to adequately test the design and the operating effectiveness of the control system. The cost of undertaking should be included ...

Solution Summary

This solution discusses design and operation effectiveness during auditing.

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