Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
may (and, in the absence of additional staff, should) perform functions belonging <strong>to</strong> several of the
components of internal control.
• Different terminology or frameworks from those used in ISA 315 can be used <strong>to</strong> describe the various
aspects of internal control and their effect on the audit, but all five components are <strong>to</strong> be addressed in
the audit.
• The audi<strong>to</strong>r’s primary consideration is whether, and how, a specific control prevents, or detects and
corrects, material misstatements in classes of transactions, account balances, or disclosures, and their
related assertions.
A summary of the five internal control components follows.
5.3 The Control Environment
Paragraph #
Relevant Extracts from ISAs
315.14 The audi<strong>to</strong>r shall obtain an understanding of the control environment. As part of obtaining this
understanding, the audi<strong>to</strong>r shall evaluate whether:
(a) Management, with the oversight of those charged with governance, has created and
maintained a culture of honesty and ethical behavior; and
(b) The strengths in the control environment elements collectively provide an appropriate
foundation for the other components of internal control, and whether those other
components are not undermined by deficiencies in the control environment. (Ref: Para.
A69-A78)
Control
Environment
The control environment is the foundation for effective internal control, providing discipline and structure for
the entity. It sets the <strong>to</strong>ne of an organization, influencing the control consciousness or awareness of its people.
The control environment addresses the governance and management functions. It also addresses the
attitudes, awareness, and actions of those charged with governance and management concerning the entity’s
internal control and its importance within the entity.
Note: Control-environment controls are generally pervasive in nature. They will not directly prevent, or
detect and correct, a material misstatement. Instead, they form an important foundation upon which
all other controls will be built.