Integrated Audit (IA): Auditor’s
Responsibility
• Auditing the financial statements and internal control over financial
reporting (ICFR) at the same time.
• Prior session: Intro IA and management responsibility
• Auditor’s objective:
• Express an opinion on the company's internal control over financial reporting.
How?
1. Plan the engagement
2. Use Top-down approach
3. Test and evaluate design of IC
4. Test and evaluate operating effectiveness of IC
5. Form an opinion on the effectiveness of internal control
CPA Candidate or Student?
www.farhatlecrtures.com
Plan the engagement (1 of 5)
• IA must be coordinated with financial statement audit.
• Similar to the financial statements audit:
• Learn about client industry
• Regulatory matters/Economic condition
• Technological changes
• Client Business
• Learn about any recent changes in operation
• Economic condition
• Capital Structure
• Keep in mind that client's knowledge at the planning stage might differ from client to
client:
• Nature of the client
• Auditor’s experience
• Information obtained from prior auditor
• Previously disclosed/communicated deficiencies, legal and regulatory issues
• First time client/industry
• Second or third year client: update yourCPA
information
Candidate or Student?
www.farhatlecrtures.com
More About Planning
• Auditors take into account the result of the financial statement fraud
risk assessment.
• Pay closer attention to:
Significant unusual transaction especially those reported toward the end of
the period under audit
Related party transactions
Significant management estimates
Incentives for management to falsify or inappropriately managed financial
results
CPA Candidate or Student?
www.farhatlecrtures.com
Audit of Financial Statements Vs
Audit of Internal Control
• Auditor’s consideration on internal control for financial statement audit is
different that consideration of internal control for internal control audit.
• Audit on Internal Control:
• Effective at a point in time “as of date”
• Usually, the last day of the client fiscal year
• Obtain sufficient appropriate evidence on the effectiveness of controls “as of date”.
• Financial statement audit:
• Period of time.
• Test of control throughout the year to the meet the objective of obtaining sufficient
evidence to support internal control and assess control risk
• Longer period
CPA Candidate or Student?
www.farhatlecrtures.com
Small Versus large clients
• Auditor should take into account the difference between small and
large clients
• For small companies, many internal control objectives achieved by
direct senior management involvement rather than formal policies
and procedures
• The key under those circumstances is to prevent senior management
from overriding controls
• The role of the audit committee might be very important for small
companies
• The degree of complexity of the operation between clients
CPA Candidate or Student?
www.farhatlecrtures.com
Integrated Audit: Auditor’s
Responsibility
• Auditing the financial statements and internal control over financial
reporting (ICFR) at the same time.
• Prior session: Intro IA and management responsibility
• Auditor’s objective:
• Express an opinion on the company's internal control over financial reporting.
How?
1. Plan the engagement
2. Use Top-down approach
3. Test and evaluate design of IC
4. Test and evaluate operating effectiveness if IC
5. Form an opinion on the effectiveness of internal control
CPA Candidate or Student?
www.farhatlecrtures.com
