1) The following is a common example of a circumstance imposed scope limitation. An auditor might identify a material weakness at an interim date, and the entity implements new controls to correct the deficiency. If the new controls are placed in operation near year-end, the auditor may not have sufficient time to determine that they actually are operating effectively at fiscal year-end. The auditor might consider three different responses to the circumstance imposed scope limitation. If the auditor considers it to be material, he or she would issue a qualified opinion. If the auditor considers it to be extremely material, he or she would issue a disclaimer of opinion. If the auditor has concerns about the integrity of management, the auditor will likely withdraw from the engagement. If management imposes a scope limitation: e.g, in a multi-location audit the entity imposes a restriction on visiting certain locations that are important to the scope of the audit the auditor should consider disclaiming opinion or withdrawing from the audit (if the auditor has concerns about the integrity of management.
2) Everyday monitoring examples:
- Operating managers compare internal reports and published financial statements with their knowledge of the business.
- Customer complaints of amounts billed are analyzed.
- Vendor complaints of amounts paid are analyzed.
- Regulators report to the company on compliance with laws and regulations (e.g., bank examiners' reports, IRS audits).
- Accounting managers supervise the accuracy and completeness of transaction processing.
- Recorded amounts are periodically compared to actual assets and liabilities (e.g., internal auditors' inventory counts, receivables and payables confirmations, bank reconciliations).
- External auditors report on control performance and give recommendations for improvement.
- Training sessions for management and employees heighten awareness of the importance of controls.
1 -- The comments are all significant, and the integrity of management is really the most crucial point. Most companies, at one time or another, have controls that need to be completely revised or even eliminated, with entirely different controls put into place. This is due to several factors, including business reorganizations, restructures, economic changes, industry changes, changes in technology, and so forth. The ...
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