Tom Pherson and Michelle Collier are friends employed by different public accounting firms. One day during lunch they are discussing the importance of internal control in determining the amount of audit evidence required for an engagement. Pherson expresses the view that internal control must be evaluated carefully in all companies, regardless of their size, in a similar manner. His firm requires a standard internal control questionnaire on every audit as well as a flow chart of every transaction area. In addition, he says, the firm requires a careful evaluation of the system and a modification in the evidence accumulated based on the controls and deficiencies in the system.

Collier responds by saying she believes that internal control cannot be adequate in many of the small companies she audits; therefore, she simply ignores internal control and acts on the assumption of inadequate controls. She goes on to say: 'Why should I spend a lot of time obtaining an understanding of internal control and assessing control risk when I know it has all kinds of deficiencies before I start? I would rather spend the time it takes to fill out all those forms in testing whether the statements are correct.'

REQUIRED

a. Express in general terms the most important difference between the nature of the potential controls available for large and small companies.

b. Criticise the positions taken by Pherson and Collier, and express your own opinion about the similarities and differences that should exist in understanding internal control and assessing control risk for different-sized companies.