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Control Activities – Financial Close and Reporting

In the
Financial Close and Reporting
 subtopic under
Control Activities
, you can describe the flow of information for each transaction class/process for each location.
note
When performing a public company audit of internal control, ensure that you assess the matters described in paragraph 27 of
PCAOB Auditing Std. No. 5
.
In each location form, expand the
Describe Flow of Information
 section, and then expand any of the transactions. Under the transactions, click the
View Control Activities Form
 link to view a list of specific control activities related to the transaction class/process.
The Control Activities Form can be used to further document your understanding of controls and to indicate controls that you plan to test.
For more information about the Control Activities Form, see the Understand Controls and Evaluate Design topic.
A question following the transaction class/process input fields prompts you to conclude whether the controls are properly designed and implemented (or effectively designed for public companies). Select
Yes
 or
No
. If necessary, click the
Comment
 icon to enter a comment.

Applying a Risk-Based Approach

Generally, you should focus on objectives related to the assertions you identified as potentially being higher risk and the key controls for those objectives. Pay particular attention to controls that address risk of material misstatement due to fraud or management override. Controls that address these risks might include:
  • Controls over significant, unusual transactions, particularly those that result in late or unusual journal entries
  • Controls over journal entries and adjustments made in the period-end financial reporting process
  • Controls over related party transactions
  • Controls related to significant management estimates
  • Controls that mitigate incentives for, and pressures on, management to falsify or inappropriately manage financial results.
Also, consider the sources of potential misstatement that could occur within the transaction class/process, including the following:
  • The points within the transaction class/process at which a misstatement (including a misstatement due to fraud) related to the relevant assertion could arise
  • The controls implemented by management to address those identified points within the transaction class/process
  • The controls implemented by management over the prevention or timely detection of unauthorized acquisition, use, or disposition of entity assets that could result in a material misstatement of the financial statements.

Sources of Information

In the
Document Sources of Information
 section of the
Financial Close and Reporting
 location form, describe your sources and procedures for gaining your understanding of the flow of information. Ensure that your description satisfies auditing standards regarding documentation (
SAS No. 103
 or
PCAOB Auditing Std. No. 3
).

Identified Risks

As you complete the form, consider whether any risks that could result in material misstatement of the financial statements exist. If so, enter the risk in the right-hand pane by clicking the
Add Risk
 button.

This article applies to:

  • Product: SMART Practice Aids