1. Explain what “internal controls” are and how they relate to the audit. What e
ID: 422116 • Letter: 1
Question
1. Explain what “internal controls” are and how they relate to the audit. What effect do internal controls have on the job of the auditor? 2. Commonly misunderstood facts about a corporate audit of financial statements: • Terrible internal controls will result in a bad audit opinion. • A client that violates the law will result in a bad audit opinion. • A client that has a terrible business will result in a bad audit opinion. In one or two sentences, explain why each of the following statements is untrue. • Terrible internal controls will result in a bad audit opinion. • A client that violates the law will result in a bad audit opinion. • A client that has a terrible business will result in a bad audit opinion. In addition to the textbook, you may want to take the multiple-choice quiz first. After you submit your answers I will provide you with the answer key. Then read the explanations to the answers, particularly on internal controls, to gain further insight.
Explanation / Answer
The internal auditor or internal control process helps the firm and people to follow the regulations & rules in accurate way and proceed the activities in fair way. When there are many proceuders, laws, regulations, it is common to misuse or violate some in the process, may not be intentionally but accidentally. Hence, the internal auditors helps to find the gaps, violations at the earliest time and correct them.
Terrible internal controls will result in bad audit opinion: it is not true, it helps the firm to stay at their best levels by following all their regulations, procedures, policies and laws. It helps to find any gap existed in the process and rectify them at the earliest level.
The client that violates the law will result in a bad audit opinion: In general the clients may violate law due to small reasons, but the outcomes are more danger and difficult. whatever the problems or reasons, the clients do not go beyond law and procedures.
a client that has a terrible business will result in a bad audit opinion: this notion is completely wrong, auditing a process of verifying our work according to the norms and law. It never speaks about the success or failure of any busienss. If you follow the basics correctly, you will be succeed in your work. if you do not follow, you will fail in the work. It is applicable to business firms too.
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