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This article applies to:

  • Product: SMART Practice Aids

Control Activities – Audit Areas

A series of input fields are provided to describe the flow of information for each transaction class you previously selected as significant.
Previously, in the Significant Transaction Classes activity, you identified by location the transaction classes you consider to be significant to the financial statements. Each audit area containing significant transaction classes now appears on the
Navigation
 pane.
If you expand an audit area in the
Navigation
 pane, you see that the forms are broken down by location.
For each location within each transaction class, you can describe the flow of information or reference memos and other documentation about the flow of information.

To view specific control activities related to the transaction class:

  1. Select an audit area location.
  2. Expand the
    Processing Disbursements
     section (see graphic above).
  3. Click the
    View Control Activities Form
     link.
The Control Activities Form can be used to further document your understanding of controls and to indicate controls that you plan to test.
For more information about the Control Activities Form, see the Understand Controls and Evaluate Design topic.
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
. If necessary, click the
Comment
 icon to enter a comment.

Apply a Risk-Based Approach

Generally, you should 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.

Sources of Information

In the Document Sources of Information section of the Audit Area - Control Activities, 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, enter the risk in the right-hand pane by clicking the
Add Risk
 button.