Audit Program Design Part1

Topics: Auditing, Internal control, Audit Pages: 6 (1733 words) Published: August 26, 2013
Audit Program Design Part One

Audit Program Design Part One

Anderson, Olds, and Watershed, LLP
6500 Riverside Ave.
Jacksonville, Fl 32200

January 09, 2012

President, Chief Executive Officer
Apollo Shoes Inc.
4500 Riverside Avenue
Jacksonville, Fl 32200

Dear Mr. Wallace:
This letter serves to confirm our understanding as it pertains to the specific terms and objectives of our contracted engagement. Anderson, Olds, and Watershed (AOW) will conduct a thorough examination of the income statement, balances sheet, statement of retained earnings, and statement of cash flows of Apollo Shoes for the year ended 2007. The audit will be performed within the guidelines of generally accepted accounting principles as prescribed by the Government of the United States. The audit will satisfy the requirements of the Sarbanes-Oxley Act (Sox) Section 404 and will be conducted in accordance with the United States Public Company Accounting Oversight Board (PCAOB). The ultimate objective of the audit is to render a report on the presentation of the financials that provides reasonable assurance that they are free of material misstatements. In addition AOW hopes to identify any significant risks, including fraud or other adverse circumstances with a view to assess it internal controls. Description of the Relationship between Internal Controls and the Audit Process An internal control system consists of policies and procedures designed to provide management with reasonable assurance that the company achieves its objectives. These policies and procedures are often called controls and comprise the entity’s internal control (Arens, 2006, P. 270). As mandated by SOX, management is responsible for the generation of an entity’s internal controls as well as preparing and maintaining the financial statements. In addition, management must also “identify the framework used to evaluate the effectiveness of those internal controls” (Arens, 2006, P. 271). Good internal controls will provide a high level of assurance that the financials are prepared fairly; however, this does not, nor should not, imply that they are error free. Conversely, auditors are responsible for reviewing an entity’s established controls to validate that the financial statements are accurately and fairly stated. Auditors use the results of the evaluation to ascertain control risks. Auditors must gain knowledge of an entity’s internal controls to most effectively design a test plan. This way, the auditor can successfully gauge any risks inherent within the controls under audit. In the course of attempting to gain an understanding of internal control and assessing control risk, the auditor’s primary objectives involve transaction-based audit objectives (Arens, 2006, P. 273). These transaction-related audit objectives are in contrast with controls which may adversely affect the efficiency of operations. This is a primary concern of management and not necessarily that of the auditor. Although these are not of primary importance to the auditor, a review of these controls and the information they reveal should not be taken for granted. Significant Regulations and Guidelines Related to Audits of Internal Control There are primarily three significant regulations related to audits of internal control. They are: * Committee of Sponsoring Organizations (COSO) of the Treadway Commission, a private organization that offers organizations a framework to assess their control systems. * Sarbanes-Oxley Act Section 404 (SOX 404) necessitates both the management and the external auditor to report on the sufficiency of the internal control. * Statement on Auditing Standard (SAS) requires auditors to evaluate control deficiencies and communicate in writing the significant deficiencies and material weaknesses to management. According to the COSO Framework, the responsibility for internal control belongs to everyone in an organization. This includes company...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Apollo Audit Program Design Essay
  • Audit Program Design Part 2 Essay
  • Audit Essay
  • Essay about Audit
  • Essay about Audit Program Design Part II
  • Audit Program Design Part Ii
  • Audit Program Essay
  • AUDIT PROGRAM DESIGN PART II Essay

Become a StudyMode Member

Sign Up - It's Free