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
Exhibit 5.3-1
Assignment of authority/responsibility
Organizational structure
Communication
of entity values
and commitment
<strong>to</strong> competence
Management’s philosophy and operating style
Governance structure and practices
Human resources
policies and
procedures
Control environment controls will influence the audi<strong>to</strong>r’s evaluation of the effectiveness of other specific
control activities that may address specific areas such as sales and purchase transactions. For example, if
management has a negative attitude <strong>to</strong>ward control in general, this will undermine the effectiveness of other
controls (such as sales, etc.) no matter how well they were designed.
The audi<strong>to</strong>r’s evaluation of the design of the entity’s control environment would include the elements set out below.
Exhibit 5.3-2
Key Elements
<strong>to</strong> Address
Communication
and Enforcement
of Integrity and
Other Ethical
Values
Commitment <strong>to</strong>
Competence
Participation by
Those Charged
with Governance
Description
Integrity and ethical values are essential (foundational) elements, which influence the
effectiveness of the design, administration, and moni<strong>to</strong>ring of other controls.
Management’s consideration of the competence levels for particular jobs, and how
those levels translate in<strong>to</strong> requisite skills and knowledge.
Attributes of those charged with governance such as:
• Their independence from management;
• Their experience and stature;
• The extent of their involvement and the information they receive, and the
scrutiny of activities; and
• The appropriateness of their actions, including the degree <strong>to</strong> which difficult
questions are raised and pursued with management, and their interaction with
internal and external audi<strong>to</strong>rs.