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Document audit area and financial close and reporting control activities

You can use CX-4.2.1 to describe the flow of information for each transaction class you previously selected as significant.
  • In the Significant Transaction Classes activity, you selected the transaction classes you consider to be significant to the financial statements. Each audit area containing significant transaction classes now show on the Navigation pane.
  • For each transaction class, you can describe the flow of information or reference memos and other documentation about the flow of information. 
  • The Control Activities Form can be used to further document your understanding of controls and to indicate controls that you plan to test.
  • A question following the transaction class input fields prompts you to conclude whether the controls are properly designed and implemented (or effectively designed for public companies). Select
    Yes
     or
    No
    . You can document your comments if necessary. 

Apply a risk-based approach

Generally, you'll need to 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, including the following:
  • The points within the transaction class 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.
  • 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.

Document sources of information

In the Document Sources of Information section, 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, select
Add Risk
 to enter the risk.

This article applies to:

  • Subject: tools

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