CPA Auditing and Attestation (AUD)

Certified Public Accountant Auditing and Attestation examination.

Audit Fundamentals & PrinciplesEthics and Professional ResponsibilitiesAudit Evidence & Documentation
Internal Controls & Risk AssessmentAudit Sampling & Analytical ProceduresAudit Reports & Opinions
Auditing Revenue CyclesTesting Inventory & Physical CountsAuditing Information Systems
Time Management for the AUD ExamMastering Multiple Choice & SimulationsActive Learning Techniques
Audit Fundamentals &...Ethics and Professio...Audit Evidence & Doc...Internal Controls & ...Audit Sampling & Ana...Audit Reports & Opin...Auditing Revenue Cyc...Testing Inventory & ...Auditing Information...Time Management for ...Mastering Multiple C...Active Learning Tech...
Advanced Topics

Internal Controls & Risk Assessment

What are Internal Controls?

Internal controls are systems and procedures designed to safeguard assets, ensure reliable financial reporting, and promote operational efficiency.

Types of Controls

  • Preventive Controls: Stop errors before they happen (e.g., approval requirements).
  • Detective Controls: Find errors after they occur (e.g., reconciliations).
  • Corrective Controls: Fix problems after detection.

Risk Assessment

Auditors assess risks to focus their work efficiently. The risk model considers: \( \text{Audit Risk} = \text{Inherent Risk} \times \text{Control Risk} \times \text{Detection Risk} \)

  • Inherent Risk: Susceptibility to errors without controls.
  • Control Risk: Likelihood controls will fail.
  • Detection Risk: Chance auditors miss an error.

Real-World Relevance

Understanding controls helps auditors identify where misstatements may occur and tailor their testing.

Key Formula

\[\text{Audit Risk} = \text{Inherent Risk} \times \text{Control Risk} \times \text{Detection Risk}\]

Examples

  • A retailer uses two signatures for large payments as a preventive control.

  • An auditor increases testing in areas with high risk and weak controls.

In a Nutshell

Internal controls and risk assessment guide audit focus and procedures.

Key Terms

Control Risk
The risk internal controls will not prevent or detect errors.
Inherent Risk
The natural risk of error in an area, before controls are considered.
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Audit Sampling & Analytical Procedures
Internal Controls & Risk Assessment - CPA Auditing and Attestation (AUD) Content | Practice Hub