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Accounting standard 2201 establishes requirements and provides direction that applies when an auditor is engaged in audit management’s assessment of internal control over financial reporting integrated with an audit of the financial statements.
Give effect to the financial reporting; it provides a reasonable assurance and prepares the financial statements for external purposes. The company’s financial reporting cannot be considered adequate if material weaknesses exist.
The auditor’s purpose is to express an opinion on the effectiveness of the company’s financial reporting because a company’s internal control can only be considered adequate if any material weaknesses exist. The auditor has a plan and performs the audit to obtain appropriate evidence about the material weaknesses in financial reporting and verify that the financial statements are not materially misstated. The auditor uses the same suitable, recognised control framework to audit and for its annual evaluation of the company’s financial reporting.
The audit of financial reporting is integrated with auditing the financial statements. The objectives of the audits are different in every circumstance, and therefore, the auditor must perform and plan the work to achieve the company’s objectives accordingly.
The auditor has planned properly to audit financial reporting and adequately supervise the engagement of team members. The auditor evaluates the matters essential to the company’s financial statements that affect the audit procedures.
Risk assessment implies the entire audit process and complies with the standard, including determining significant assertions, accounts, and disclosures, selecting controls to test, and determining the evidence necessary for internal control.
However, if a company fails to prevent or detect internal misstatements caused by fraud, it is usually a higher risk of failure to prevent or detect errors. The auditor should focus more on the areas of highest risk. On the other hand, it is unnecessary to test the internal controls and check the material misstatement in the financial statements timely. The complexity of the organisation, business unit, or process will play an essential role in the auditor’s risk assessment and determining the necessary procedures.
The auditor evaluates the company’s controls and identifies future risks of material misstatement due to fraud or misrepresentation. Internal controls that identify the risk which include;
Generally, the auditor used the same materiality considerations they would use to audit the company’s annual financial statements and identify significant Accounts.
The auditor identified the significant accounts and disclosures and their relevant assertions. Relevant assertions are those financial assertions with a possibility of containing a misstatement in the financial record that would cause materially misstated for the company. The financial statement assertions include as following:
The auditor evaluates the risk factor in identifying accounts and disclosures of the audit in financial statements.
The auditor gives an opinion on the effectiveness of the financial reporting by evaluating evidence obtained from all the appropriate sources, including the auditor’s misstatements detected during the financial statement audit, testing controls, and any identified control deficiencies. The auditor reviewed reports issued by internal audit during the financial year and evaluated control deficiencies identified in those reports.
Also Read:Internal Controls- A Guide for directorsInternal Control System- Analysis of Benefits & Limitations
Minakshi Bindhani has completed LL.M. with a specialization in Criminal Law from Madhusudan Law University, Cuttack, Odisha. She is more inclined toward legal research and writing and have prior experience in Civil and Criminal litigation and content writing.
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