Identifying Key Controls 385



  • Can anyone offer any advice or know of any resources for identifying key controls (i.e. how would you explain to someone with no audit experience what a key control is?).
    Thanks.



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  • Ultimately key controls are the combination of controls that are tested so that management is able to demonstrate that it has a system of internal control.
    For SOX purposes a key control is one that meets a financial statements risk. Ideally, your combination of key controls is the fewest number of controls that meet all of your risks/assertions within a process.
    In practice it is likely that one control will meet more than one risk in a process. Say that in one process you have 10 financial statements risks and 30 controls, you might find that one control e.g. bank reconciliation meets 5 of those risks, it will be a key control, as will be the controls that you select to address the other 5 risks. In total you may end up only needing to TEST 4 or 5 controls within one process rather than all 30 controls



  • Many thanks.



  • Based on the PCAOB a significant financial misstatement is a control deficiency, or a combination of control deficiencies, that adversely affects the companys ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the companys annual or interim financial statements that is more than inconsequential will not be prevented or detected.
    Therefore Management should consider those controls as key controls, which enables them to conclude that there is a remote risk of a material financial misstatement occuring.


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