Case Studies in Not-for-Profit Accounting and Auditing

Chapter 9 ASSESSING INTERNAL CONTROL DEFICIENCIES

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

• Identify internal control, internal control elements, and internal control risk as related to fraud.
• Identify key issues in evaluating and reporting internal control deficiencies as relates to fraud.
• Identify the auditor's evaluation of internal control deficiencies as relates to fraud.
• Identify the auditor's responsibility as it relates to fraud.

TECHNICAL BACKGROUND INFORMATION

For purposes of this chapter, we will discuss the generally accepted auditing standards (GAAS) audit of an organization's financial statements, which, of significance to this course chapter would include an examination of the design and operating effectiveness of an entity's internal control(s). Specifically, this chapter addresses internal control, the elements of internal control and internal control deficiencies as relates to fraud in not-for-profit entities.

This discussion uses the following definitions from AU-C section 265, Communicating Internal Control Related Matters Identified in an Audit:

Control Deficiency in Internal Control

Exists when the design or operation of internal controls does not prevent, or detect and correct, misstatements on a timely basis. A design deficiency exists when a control needed to meet the control objective is missing or an existing control is not properly designed so that the control objective would not be met ...