It is 1 July 20X5 and your firm is auditing the financial statements of Osprey Co, an engineering company, for the year ended 31 March 20X5.

With effect from 1 October 20X4, Osprey Co made major changes to its internal control, including the introduction of a new computer-based accounting system. The audit team has now completed its audit work on internal control, some with the aid of test data, prior to commencing its substantive procedures.

(a) Define internal control in the context of a limited liability company.

(b) Explain the nature and purpose of the following:

I. Walk-through tests; and

II. Tests of controls.

(c) Explain how the major changes to internal control with effect from 1 October 20X4, should have affected your firm’s approach to understanding, recording, and evaluating Osprey Co’s internal control system, prior to commencing its substantive procedures for the year ended 31 March 20X5.

(d) How does test data approach differ from parallel simulation and embedded audit module approach?

(e) Identify and explain ONE problem associated with the use of test data by auditors.

Answer rating: 100% (QA)

a Internal control as defined by accounting and auditing is a process for assuring of an organizations objectives in operational effectiveness and efficiency reliable financial reporting and complianc... View the full answer