Describe the evidence you might find that would indicate operating effectiveness..
Business Risk:Disregard for sound ethical principles, either intentional or unintentional, may cause managers and employees to cut corners, embellish performance results, misuse company resources, or otherwise act in a manner that harms the company and its stakeholders.
Use the business objective and business risk stated above as the basis for answering the following questions. As he or she deems necessary, your instructor will facilitate the formulation of collective answers to certain questions that will serve as uniform starting points for answering subsequent questions.
Scenario 1 Activities
1.Management asserts that entity-level controls are designed adequately and operating effectively to reduce the above stated risk to an acceptably low level. Identify the key entity-level controls you expect to find in place if management’s assertion is true. Keep in mind that entity-level controls may exist in any of the five COSO components of internal control (control environment, risk assessment, controls, information and communication, and monitoring). [Note: Students are encouraged to review exhibit CS1-4, but answers should be case-specific.]
2.Many elements of the control environment are “soft” in nature. They may, for example, involve senior management behavior that intrinsically leaves little, if any, audit trail. An example of a soft control that you may have included in your answer to question 1 above is expressed as follows:Senior management fosters a strong corporate ethical climate by what they say and what they do. They lead by example when faced with tough business decisions involving ethical ramifications.
a.Identify the audit procedures you would use to determine whether this control exists within SHR Corporation. Be specific.
b.Assume that this control does in fact exist within SHR Corporation.
1.Identify the audit procedures you would use to determine whether it is operating effectively. Be specific. Keep in mind that you need to build a sufficient body of appropriate evidence to support a valid conclusion.
2.Describe the evidence you might find that would indicate operating effectiveness.
3.The PCAOB’s Auditing Standard No. 5 indicates that entity-level controls include both (1) controls to monitor other controls and (2) controls to monitor results of operations. Provide an example of each type of monitoring control that would be useful in mitigating the business risk expressed above.
Describe the evidence you might find that would indicate operating effectiveness.
