[Boruch]

Hi all

I’m using Roger to prepare for the exam and he’s got me totally confused regarding the assessment of whether to rely on IC or not.

I think my question boils down to what factors is the auditor required by GAAS to consider before deciding on whether to rely on the internal controls.

Answers highly appreciated.
Thank you!

[imsotiffanyy]

I had the same exact issue but I hope this clarifies it for you:

Auditors only care about assessment of ICs that they intend to rely on. They do not assess all ICs.

This is basically constraint by cost and benefit analysis.

[Boruch]

Just to make sure I understand you correctly, you're saying that the assessment is basically part of a cost benefit analysis?

That would make perfect sense, it's just that Roger has something about “expectations of operational effectiveness” as a factor too. Could you speak to that?

Thank you very much!

[imsotiffanyy]

I'm currently studying for Audit as well and I think the best way to frame Audit is similar to winning a court case.

As an auditor you're assessing the numbers on the financial statements, your job is not to ensure that IC is working properly. Therefore to make sure the numbers are correct. You would only need to test the ICs that you need to rely on to support your claim that the financial statements are good.

However if their ICs suck or it cost too much for you to test their controls, you will need more substantive testing.

Hope this is helpful!

[Author]

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