WEEK 4 –INDIVIDUAL ASSIGNMENT

5.3 What are the primary and secondary reasons for conducting an evaluation of an audit client’s internal control?

A. The auditor has two primary reasons for conducting an evaluation of a company’s internal control. 1) First, Sarbanes-Oxley (SOX) requires an audit of management’s assessment of internal controls for publicly traded companies. This type of audit is an integrated part of the financial statement audit. In some substances, the auditor issues three opinions: one on the company’s financial statements, one on management’s evaluation of their internal controls over financial reporting, and one on the effectiveness of a company’s internal controls. 2) The second reason for evaluating a company’s internal control is to assess control risk to give the auditors a basis for planning the audit and determining the nature, timing, and extent of audit procedures for the account balance (substantive) audit program. B. For secondary reason for evaluating internal control is to provide information useful to the management and directors for carrying out the company’s control mission. Regulators, Congress, and the public have been concerned about auditors’ communication of internal control and other matters to high levels in public corporations.
Another responsibility is to communicate internal control matters noted in an audit to the audit committee of the company’s board of directors and directly to shareholders through their report on management’s assertion of effective internal control in the annual report.
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5.8 What four types of control breakdowns can cause failure to achieve control objectives?

The most contribution that causing failure to achieve control objectives is from the people. The main reason is the people are the key component of an entity’s internal control.