Statements of Position



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In February 1988, the Auditing Standards Board issued SAS No. 55, Consideration of the Internal Control Structure in a Financial Statement Audit. SAS No. 55 requires that, in every audit, the auditor: 1. Obtain an understanding of each of the elements (control environment, accounting system, and control procedures) of the internal control structure sufficient to plan the audit, and 2. Assess control risk for assertions related to account balances and transaction classes. This proposed guide was prepared to illustrate how SAS No. 55 might be applied by auditors in certain situations. Specifically, this proposed guide does this by illustrating two different audit strategies among many that an auditor might choose when auditing an assertion. As depicted in the flowchart in figure 1-2, the auditor may plan: 1. A primarily substantive approach (which ordinarily results in a control risk assessment at or slightly below maximum), or 2. A lower control risk assessment. In each case, the preliminary audit strategy may influence the extent of understanding of each element of the internal control structure that the auditor needs to obtain. Therefore, the nature, timing, and extent of procedures performed to obtain this understanding and assess control risk may differ. The audit strategy may also affect the nature, timing, and extent of substantive procedures to be performed. This proposed guide provides guidance on these matters as well as on the related documentation of evidence obtained by the auditor. It supports the guidance with illustrations of the audits of three hypothetical companies --Ownco, Inc., Young Fashions, Inc., and Vinco, Inc. Ownco, Inc. is a small, owner-managed business. Young Fashions, Inc. represents a growing, nonpublic company with multiple locations. Vinco, Inc. is a large public company. Since most accounting systems involve computer processing (through a microcomputer, minicomputer, or mainframe), each of these three hypothetical companies uses some form of computer processing. Through these illustrations, presented in italics throughout, the proposed guide describes how an auditor's procedures to obtain the understanding and assess control risk may differ from audit to audit.

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Financial statements -- Auditing -- Standards; Audited financial statements -- Standards -- United States


Accounting | Taxation


Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants.

Proposed audit and accounting guide for consideration of the internal control structure in a financial statement audit ;Consideration of the internal control structure in a financial statement audit; Exposure draft (American Institute of Certified Public Accountants), 1989, Aug. 21



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