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Internal control

Control Activities – Significant Transaction Classes

Significant Transactions Classes
 is a subtopic of
Control Activities
 in the Navigation pane. This form lets you select the transaction classes for which you want to obtain an understanding of internal control and determine whether controls are properly designed and implemented (or effectively designed for public companies).
Significant Transactions Classes
 is a subtopic of
Control Activities
 in the Navigation pane. It is the form that follows the
Understand Controls and Evaluate Design
 COSO components (Control Environment, Risk Assessment, Information and Communication, and Monitoring).
This form lets you select the transaction classes for which you want to obtain an understanding of internal control and determine whether controls are properly designed and implemented (or effectively designed for public companies). This form lets you select the transaction classes for which you want to obtain an understanding of internal control and determine whether controls are properly designed and implemented (or effectively designed for public companies). Note that the Financial Close and Reporting and General Computer Controls processes are included with significant transaction classes.
note
In performing a public company audit of internal control,
PCAOB Auditing Std. No. 5
 does not require the identification of significant transaction classes and processes. However, you will need to understand them to appropriately identify and select for testing the controls that address the assessed risk of misstatement to each relevant assertion.

To identify significant transaction classes by location

  1. In the Significant Transaction Classes window, click the
    +
     symbol next to an audit area to view its transaction classes.
  2. Under the appropriate location column, select the check box next to each transaction class that is considered significant to the financial statements.
    note
    A red exclamation symbol () appearing before an audit area indicates that a significant or fraud risk is associated with the audit area. You can click the exclamation mark to view the risk.
During this activity, as you identify by location the transaction classes you consider to be significant to the financial statements, a new location sub-topic appears on the
Navigation
 pane to correspond with each audit area containing significant transaction classes.

Add Transaction Class

If you want to use a transaction class that is not listed, click the
Add Transaction Class
 button at the bottom of the Significant Transaction Classes window.
On the Add New Transaction Class window, enter the name of the new transaction class and select the check boxes for the applicable audit areas.
You can also select to base the new transaction class on an existing transaction class by making a selection from the drop-down list.
If you base the new transaction class on an existing transaction class, objectives and their relationships to controls and test procedures are copied to the new transaction class.

Edit or Delete Transaction Class

Once the new transaction class is added, you can edit or delete it from the
Significant Transaction Classes
 window, by clicking it with your right mouse button and selecting the edit or delete option.
Only transaction classes that you have created with the
Add Transaction Class
 feature can be deleted. However, you can edit any transaction class, letting you add or omit audit areas to which the transaction class is assigned.

Add Location

To add one or more company locations, click the
Add Location
 button at the bottom of the Significant Transaction Classes window.
  1. On the
    Locations
     tab of the
    SMART Engagement Setup
     window, type the name of the new location.
  2. Click the
    Add Location
     button.
  3. Click
    OK
    .
The new location provides an additional column for identifying transaction classes significant to the new location.

Delete a Location

  1. Select
    SMART Engagement Setup
     from the
    Edit
    menu..
  2. On the
    Locations
     tab of the
    SMART Engagement Setup
     window, right-click the location that you want to delete.
  3. Click
    Delete Location
    .
note
Internal Control
 requires you to have at least one location; the last remaining location cannot be deleted.

Edit a Location

You can edit a location name by clicking the name once and entering the new name.

Apply a Risk-Based Approach

When selecting significant transaction classes, focus on those that present a reasonable possibility of material misstatement to the financial statements or disclosures. Evaluate qualitative and quantitative factors such as the following:
  • Accounting and reporting complexities associated with the account or disclosure.
  • Susceptibility to misstatement due to errors or fraud.
  • Existence of related party transactions in the account.
  • Volume of activity.
  • Size and composition of the account.
  • Nature of the account or disclosure.
  • Exposure to losses in the account.
  • Possibility of significant contingent liabilities arising from the activities reflected in the account or disclosure.
  • Changes from the prior period in account or disclosure characteristics.