Internal Control: Understanding and Testing

Overview

This study examines associations between auditor provided tax compliance and tax planning services and tax avoidance and tax risk. Collectively, our results suggest that companies paying their auditors for tax planning advice are more effective tax planners (in terms of higher tax avoidance and lower tax risk) than firms that do not engage their auditor for tax work. Our tax avoidance results are more pronounced for clients of auditors with more tax expertise and longer tenure, as well as for firms with higher tax and operational complexity. We also find that our tax avoidance results hold only when firms also engage their auditors for tax compliance work, which is consistent with auditors seeking to minimize reputation threats. Our study’s unique hand-collected panel dataset provides a more precise and nuanced perspective on the role auditors play in tax outcomes.

Highlights

• Review of the audit requirements stated in the auditing standards regarding internal control activities
• Analysis of the control environment, concentrating on privately-owned businesses
• A detailed discussion of an effective system of internal control and related control activities as detailed in the updated COSO report
• Sample risk assessment procedures to determine control risk for all major assertions
• Discussion of how to reduce control risk to below maximum
• Specific tests of controls that can be beneficial to a financial audit
• Discussion of the requirements to test controls for Governmental audits

Prerequisites

None.

Objectives

• Recognize areas where controls exist and the circumstances when controls can be tested
• Determine when and how private companies maintain a system of internal control when formal processes do not exist
• Identify strengths and weaknesses in a private company's control environment by performing risk assessment procedures and transaction walk-throughs

Preparation

None.

Notice

This is a self-study/on demand course offered by a 3rd party vendor and will NOT be accessible in the My Upcoming CPE section of the ISCPA website. Course access information will be emailed directly to you by CalCPA. The course expires one year from the purchase date. Format = Online Self-Study.