Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
SlideShare a Scribd company logo

Control risk dr muhammad tauseef javed

•
•

The document discusses control risk assessment and evaluation. It covers: [1] assessing the control environment and internal control framework; [2] recording processes and systems using tools like flowcharts; and [3] evaluating internal controls through compliance testing and direct substantive testing. Compliance testing involves sampling to test if key controls were applied, while substantive testing uses analytical procedures and detailed tests to check account balances and transactions. The goal is to obtain reasonable assurance that financial statements are not materially misstated.

1 of 16

1

Control Risk Assessment and evaluation DR MUHAMMAD TAUSEEF JAVED MBBS.DPH.FCPS(CM)M.Phil(CM).Dip-Card DR MUHAMMAD TAUSEEF JAVED

2

INTRODUCTION The presentation is designed to cover the following topics: Assessing the control environment Ascertaining internal control framework Recording processes and the systems Evaluation of internal control framework Evaluation of control in critical systems Compliance testing Direct substantive testing DR MUHAMMAD TAUSEEF JAVED

3

Assessing the control environment Components of internal control framework Control environment Risk assessment and risk management Control activities Information and communication Monitoring DR MUHAMMAD TAUSEEF JAVED

4

Ascertain the control system Sources of information Information gathered and documented during planning Internal and published communication of the entity Interviews with the auditee management Personal observation Legislation and regulations DR MUHAMMAD TAUSEEF JAVED

5

Recording processes and the systems Means available Notes of meetings and interviews Narrative descriptions Flow charts Organization charts Internal Control Questionnaires Control Evaluation Form Record of system weaknesses DR MUHAMMAD TAUSEEF JAVED

6

Flow charting symbols Input/output Decision Process Off line storage Manual operation On line storage Document Connector Multi-documents Terminator DR MUHAMMAD TAUSEEF JAVED

7

Evaluation of control in critical systems o Identify controls in the system or systems relating to each audit issue. o Determine if these controls are reasonably adequate with reference to the organizational objectives. o Identify any unusual activities or specific weaknesses, or other risks, which need to be addressed. DR MUHAMMAD TAUSEEF JAVED

8

Ascertain and record Identify controls in critical systems Identify management objectives Define control objectives Record control objectives DR MUHAMMAD TAUSEEF JAVED

9

Compliance testing The objective of compliance testing is to get assurance that the internal controls on which the auditors have decided to rely had been in place throughout the period of audit. Sampling for compliance testing Sample size for compliance testing depends on:  Upper Error Limit (UEL)  Expected number of deviations in the sample  Confidence level to be obtained from audit procedures Formula for calculating sample size CF SS = UEL DR MUHAMMAD TAUSEEF JAVED

10

Compliance test program  Specify its overall objective.  List the tests the auditors should perform along with the test technique.  Be drawn up for controls of each audit issue to be evaluated.  Have its tests cross-referenced to the specific controls in the control framework evaluation.  Be revised after any major change in controls.  Tests only key controls.  Specify what is meant by a control failure.  Specify when tests are to be performed.  Specify the sample size and the length of observation period. DR MUHAMMAD TAUSEEF JAVED

11

Direct substantive testing Substantive procedures involve the use of Analytical Procedures and Substantive tests of details. ANALYTICAL PROCEDURES These are techniques by which the auditors: o Study and use meaningful relationships among elements of financial and non-financial information to form expectations about what the recorded amounts should be. o Compare such expectations with the recorded amounts. o Use the results of the comparisons to help determine what, if any, other audit procedures are needed to obtain reasonable assurance that the recorded amounts are not materially misstated. DR MUHAMMAD TAUSEEF JAVED

12

Types of analytical procedures o Reviews for reasonableness o Comparative analysis o Predictive analysis o Statistical analysis o Overall verification procedures DR MUHAMMAD TAUSEEF JAVED

13

Substantive tests of details - 100% for very large transactions - 100% for high risk transactions - On sample basis for remainder Objective of test Balance sheet Income statement o Completeness o Completeness o Existence o Occurrence o Valuation o Measurement o Ownership o Compliance with authority o Disclosure o Disclosure DR MUHAMMAD TAUSEEF JAVED

14

Methods of testing - Physical verification - Re-performance - Independent third party confirmation - Scrutiny - Vouching - Inspection DR MUHAMMAD TAUSEEF JAVED

15

Sample size for substantive test of details Monetary Unit Sampling Formula: PV x CF SS = , where BP SS = Sample size PV = Population value CF = Confidence factor BP = Basic precision (One half of materiality amount) DR MUHAMMAD TAUSEEF JAVED

16

This concludes today’s session. DR MUHAMMAD TAUSEEF JAVED

More Related Content

Control risk dr muhammad tauseef javed

  • 1. Control Risk Assessment and evaluation DR MUHAMMAD TAUSEEF JAVED MBBS.DPH.FCPS(CM)M.Phil(CM).Dip-Card DR MUHAMMAD TAUSEEF JAVED
  • 2. INTRODUCTION The presentation is designed to cover the following topics: Assessing the control environment Ascertaining internal control framework Recording processes and the systems Evaluation of internal control framework Evaluation of control in critical systems Compliance testing Direct substantive testing DR MUHAMMAD TAUSEEF JAVED
  • 3. Assessing the control environment Components of internal control framework Control environment Risk assessment and risk management Control activities Information and communication Monitoring DR MUHAMMAD TAUSEEF JAVED
  • 4. Ascertain the control system Sources of information Information gathered and documented during planning Internal and published communication of the entity Interviews with the auditee management Personal observation Legislation and regulations DR MUHAMMAD TAUSEEF JAVED
  • 5. Recording processes and the systems Means available Notes of meetings and interviews Narrative descriptions Flow charts Organization charts Internal Control Questionnaires Control Evaluation Form Record of system weaknesses DR MUHAMMAD TAUSEEF JAVED
  • 6. Flow charting symbols Input/output Decision Process Off line storage Manual operation On line storage Document Connector Multi-documents Terminator DR MUHAMMAD TAUSEEF JAVED
  • 7. Evaluation of control in critical systems o Identify controls in the system or systems relating to each audit issue. o Determine if these controls are reasonably adequate with reference to the organizational objectives. o Identify any unusual activities or specific weaknesses, or other risks, which need to be addressed. DR MUHAMMAD TAUSEEF JAVED
  • 8. Ascertain and record Identify controls in critical systems Identify management objectives Define control objectives Record control objectives DR MUHAMMAD TAUSEEF JAVED
  • 9. Compliance testing The objective of compliance testing is to get assurance that the internal controls on which the auditors have decided to rely had been in place throughout the period of audit. Sampling for compliance testing Sample size for compliance testing depends on:  Upper Error Limit (UEL)  Expected number of deviations in the sample  Confidence level to be obtained from audit procedures Formula for calculating sample size CF SS = UEL DR MUHAMMAD TAUSEEF JAVED
  • 10. Compliance test program  Specify its overall objective.  List the tests the auditors should perform along with the test technique.  Be drawn up for controls of each audit issue to be evaluated.  Have its tests cross-referenced to the specific controls in the control framework evaluation.  Be revised after any major change in controls.  Tests only key controls.  Specify what is meant by a control failure.  Specify when tests are to be performed.  Specify the sample size and the length of observation period. DR MUHAMMAD TAUSEEF JAVED
  • 11. Direct substantive testing Substantive procedures involve the use of Analytical Procedures and Substantive tests of details. ANALYTICAL PROCEDURES These are techniques by which the auditors: o Study and use meaningful relationships among elements of financial and non-financial information to form expectations about what the recorded amounts should be. o Compare such expectations with the recorded amounts. o Use the results of the comparisons to help determine what, if any, other audit procedures are needed to obtain reasonable assurance that the recorded amounts are not materially misstated. DR MUHAMMAD TAUSEEF JAVED
  • 12. Types of analytical procedures o Reviews for reasonableness o Comparative analysis o Predictive analysis o Statistical analysis o Overall verification procedures DR MUHAMMAD TAUSEEF JAVED
  • 13. Substantive tests of details - 100% for very large transactions - 100% for high risk transactions - On sample basis for remainder Objective of test Balance sheet Income statement o Completeness o Completeness o Existence o Occurrence o Valuation o Measurement o Ownership o Compliance with authority o Disclosure o Disclosure DR MUHAMMAD TAUSEEF JAVED
  • 14. Methods of testing - Physical verification - Re-performance - Independent third party confirmation - Scrutiny - Vouching - Inspection DR MUHAMMAD TAUSEEF JAVED
  • 15. Sample size for substantive test of details Monetary Unit Sampling Formula: PV x CF SS = , where BP SS = Sample size PV = Population value CF = Confidence factor BP = Basic precision (One half of materiality amount) DR MUHAMMAD TAUSEEF JAVED
  • 16. This concludes today’s session. DR MUHAMMAD TAUSEEF JAVED