1- Is a compensating control, a control that can suffice for another internal co
ID: 2447733 • Letter: 1
Question
1- Is a compensating control, a control that can suffice for another internal control? For example, if we had a control that stated that the department manager need to approve all purchase orders over $10,000 but we had another control that said that all invoices are approved by the manager and the CFO, could be a compensating control if the department manager did not approve the purchase order but the invoice has been approved by both parties and has the appropriate documentation.
2- If an auditor finds a control is not working as intended, he document the evidence that indicates the failure in the internal control and add to his analyse to calculate the risk assessment on financial statements auditing. Would there be other procedures that could be used that might "compensate" for a control failure of a specific control?
3- Do you think external auditors are likely to use continuous auditing as an audit tool? Why or why not?
Explanation / Answer
Answer 1
Compensating Control is a control which generally occurs after the transaction is completed, in the given case we are seggregating the duties so that we cann mitigate the risk by making one person to approve the purchases and another one will sign the documents or both will sign, but when two authorities will check the same transaction, there will be less chances of fraud and fault. So here whats been done in a company is Segmentation of duties and not Compensating Control.
Answer 3
Continuous auditing consists of the automated collection of audit evidence and indicators by an external auditor from an entity’s IT systems, processes, transactions, and controls on a frequent or continuous basis. External auditor uses this tool because it enhances auditor capabilities and helps to ensure compliance with policies, procedures, and regulations. In many cases, CA can act as an early warning system by detecting control failures on a timelier basis than traditional approaches. This is not the only audit tool which external auditors uses for auditing but also uses this to have a effecient and effective audit.
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