Entity-level controls are tested by the auditor to conclude whether the company has effective internal control over financial reporting. Entity controls vary in nature and include;
Controls that are related to the control environment- the editor must evaluate the control environment of the company because they are important they are important to effective internal control over financial reporting. The following is assessed as part of evaluating the control environment; whether there is promotion of effective internal control over financial reporting by the management’s philosophy and operating style, whether there is development and understanding of the sound integrity and ethical values particularly on top of management, and whether there is exercising and understanding of the oversight responsibility over financial reporting and internal control by the Board or audit committee. Certain control environment controls, have an important, but indirect, effect on the likelihood that a misstatement will be detected or prevented on a timely basis. These controls might affect the other controls the auditor selects for testing and the nature, timing, and extent of procedures the auditor performs on other controls.
Controls over management override- these are important to effective internal control over financial reporting for all companies, and may be particularly important at smaller companies because of the increased involvement of senior management in performing controls and in the period-end financial reporting process. For smaller companies, the controls that address the risk of management override might be different from those at a larger company. For example, a smaller company might rely on more detailed oversight by the audit committee that focuses on the risk of management override.
The company’s risk assessment process- If the auditor plans to assess control