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Auditing: a Practical Approach

In: Business and Management

Submitted By kateiv78
Words 1267
Pages 6
REVIEW QUESTIONS
8.1. Explain the purpose of (a) prevent controls and (b) detect controls. Why would it be important for an entity to have both types of controls?
In order to prevent, detect and correct material misstatement the auditor performed the procedures called Test of Controls. There are two types of controls: Prevent Controls and Detect Controls.
Prevent Controls can be applied to each transaction during normal processing in order to avoid errors. When planning controls, an auditor should take in consideration all possible scenarios (What can go wrong WCGWs) which would result in an error. By designing effective controls the auditor can prevent and correct detected errors as soon as possible.
Detect Controls help to discover an error or fraud that may have occurred during transaction processing and to correct those errors. Detect controls usually applied outside the normal flow of transactions to groups of transactions that have been processed already.
Controls over transaction should include both prevent and detect controls in order to be effective because without prevent controls, detect controls may not be able to identify and correct an error.
8.2. Explain the difference between automated and manual controls.
Manual Controls are controls that do not depend on the client’s IT system for their operation. There are few companies that do not use any sort of IT system in processing transactions now days, so manual controls will still use some sort of IT-produced information from third parties.
Automated Controls mostly rely on the client’s IT software. The main concern here is to identify how much of reliance a control places on IT and whether or not the client has effective IT general controls.
8.4. What are the four types of tests of controls? Explain them and comment on the reliability of the evidence obtained from each.
There are four types...

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