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9-1 Final Project Submission
ACC645
SNHU
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Table of Contents
Introduction b 3
Part 1: Client Engagement b 3
Part -2: Planning the audit b 7
Part -3: Internal Control 11
Part 4: Communication b b b b b b b b b b b b 16
Conclusion b b b b b b b b b b b b 20
References b b b b b b b b b b b b 22
Introduction
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For the final project, Willis & Adams is reevaluating its audit procedures and client
list. Thus, the lead auditor at the external auditing firm plays an important role in
communicating the audit opinions to the senior management and in evaluating and
recommending improvements to internal control. In the first part of the report, the focus has
been given to client engagement, corporate structure, and internal and external factors. In the
second part, the planning of the audit will analyze the management assertions, business risks,
audit risk, effect on audit procedures, internal controls, and materiality regarding the financial
statements of EarthWear Clothiers. The next section focuses on the internal control aspects
that are in place Earthwear Clothiers. For critically evaluating the existing internal controls,
the chief control elements that have been examined include the control environment, risk
assessment, information system, control activities as well as monitoring activities. In the
internal context, controls need to be introduced at diverse levels so that gaps, weaknesses and
deficiencies can be identified. The final section focuses on the communication that will take
place between the external auditor and the client business. Proper communication is essential
to make sure that the Earthwear Clothiers organization is aware of the gaps that exist in its
internal controls relating to financial reporting.
Part 1: Client Engagement
Earthwear Clothiers has approached Wills & Adams for auditing purposes. As the lead
auditor of Wills & Adams it is necessary to properly assess the internal and external factors
relating to the Earthwear Clothiers organization. It can help in determining whether the
external auditing team should move forward with the client request or not. Some of the key
elements that have been evaluated in the report include the corporate structure of Earthwear
Clothiers, the independence, knowledge of the client industry, and staffing capabilities of the
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external auditing firm. Finally, a justification has been presented to highlight the fact that it is
appropriate for Wills & Adams to accept EarthWear Clothiers’ auditing request.
A. Corporate Structure
Earthwear Clothiers was founded in 1973 by James Williams and Calvin Rogers to
create high-quality clothes for outdoor sports like skiing, hiking, etc. Its product line
encompasses casual clothing, shoes, accessories and soft luggage. The corporate structure of
the firm encompasses a number of executive officers. Williams serves as the chairman of the
board, and Rogers is the president and CEO. Desantiago is the Chief Operating Officer and
Executive Vice President. McDaniel is the Senior President of sales. Watts serves as the
Senior Vice President and Chief Financial Officer. Tornesello is the Senior Vice President of
Operations. Thus, the key department that makes up its corporate structure are sales, finance,
and operations. The management has developed and maintains a comprehensive system of
internal control within the firm. As per the annual report, the performance of 2015 is
considerably lower as compared to the previous year. Its net profit in 2013 was $ 20,270 and
in 2014 was $ 31,222. However, in 2015, the net profit has reduced to $ 22,527. The value of
the assets in 2015 is $ 329,959 which is better than that of previous year of $ 296,527. It
shows better financial position of the firm.
B. External Auditing firm’s independence
Wills & Adams is the external auditor in the specific scenario. The company
mandates its auditors to perform detailed and integrated background research of potential
clients and customers. According to the Public Company Accounting Oversight Board
PCAOB, to be independent, an auditor has to be intellectually honest, and he must be free
from any kind of obligation or interest of the client (As 1005: Independence. Default, 2021).
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Wills & Adams serves as an independent auditing firm that has a systematic process is in
place to independently and fairly perform the auditing activities. The independence can help
in conducting detailed investigations and make useful revelations about the possibility of
malpractices that may be involved within the client business. It can help in uncovering
previously existing issues in the client business. The staff of the firm complies with
independence requirements by ensuring that appropriate questionnaires are completed,
internal monitoring procedures are followed and guidelines, and protocols are adhered to for
assess compliance with independence.
Knowledge of client industry
For an auditing company to carry out authentic auditing activities, it is necessary to
possess in-depth knowledge and insight into the industry in which the client operates.
According to the PCAOB, auditors must take into account external factors such as the
industry details and the environment of work (Auditing standard no. 12. Default, 2021). The
insight is vital to making suitable suggestions to the client to improve its financial activities.
The Wills & Adams company has in-depth insight into the industry since it conducts
thorough research before commencing auditing activities. The experience and expertise that
the auditor has gained while auditing other clients in the same industry can also impact their
knowledge. Similarly, the recruitment of staff with considerable experience in the particular
industry can strengthen its knowledge further.
Staffing Capabilities
Staffing capability is another vital criterion that must be taken into consideration
while evaluating an external auditor. It can have a direct and significant influence on the
quality of the auditing activities that have been performed on the client business and financial
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reporting activities. In the specific case involving the Wills & Adams auditor, the staffing
capabilities can be considered to be one of the greatest strengths. Based on the expertise and
skills of the auditing staff, the company is able to offer a host of services to its clients,
including tax planning, assurance services, business planning, valuation services as well as
litigation support services.
According to PCAOB, an independent auditor must have the necessary professional
qualifications to perform auditing activities. Additionally, it must have adequate experience
and expertise in the domain (As 1005: Independence. Default, 2021). The staff of the external
auditing company have high experience. Wills, a CPA, formed the company. Adams is a
CPA and has experience in public and private accounting for over two decades. Mitchell is
also a CPA and joined the firm after gaining high experience in diverse public accounting
companies. Thus, the staffing capabilities of the external auditing team is strong.
C. Internal and external factors
It would be appropriate for the external auditing team to accept the client audit
request. One of the main reasons for the same is the complete independence and intellectually
honest of the external auditing company. The strong staffing capabilities can help to identify
the quality of the financial reporting system of Earthwear Clothiers. The knowledge of the
industry in which the client operates can also help in uncovering useful auditing information
about the business. The chief internal and external factors that are specific to the firm are
values relating to integrity and consistency, and market demand.
Overall, the critical elements of client engagement have been addressed in the first
part, where Wills & Adams was approached for auditing purposes. Thus, it becomes
important for the lead auditor of Wills & Adams to assess the external and internal factors
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associated with the Earthwear Clothiers organization. The identified factors have given
values relating to integrity and consistency, and market demand that can help in determining
whether the external auditing team needs to move forward with the client request or not. In
the first part of the report, some of the key elements that have been evaluated include the
independence, the corporate structure of Earthwear Clothiers, staffing capabilities of the
external auditing organization, and knowledge of the client industry. Additionally, this part
has also highlighted the justification that it is appropriate for Wills & Adams to accept
auditing requests or EarthWear Clothiers. After analyzing the client engagement, it is crucial
to understand the planning for the audit so that focus can be given to the specific business
objective EarthWear Clothiers, i.e. 'Increase customer base by introducing a new extreme
sports product line to attract younger consumers.' Thus, the planning of the audit part will
analyze the management assertions, business risks, audit risk, effect on audit procedures,
internal controls, and materiality regarding the financial statements of EarthWear Clothiers.
Part -2: Planning the audit
A. Audit plan
The audit plan is necessary for the present context after understanding the client
engagement. Wills & Adams has decided to perform an audit of the EarthWear Clothiers
client. One of the business objectives of the client business has been selected, and an audit
plan of its financial statements is created. The specific business objective that is chosen is
'Increase customer base by introducing a new extreme sports product line to attract younger
consumers.' In this report, the planning of the audit part has highlighted the management
assertions, business risks, audit risk, effect on audit procedures, internal controls, and
materiality regarding the financial statements of EarthWear Clothiers.
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1. Business Risks
According to Auditing Standard 12, which has been introduced by the Public
Company Accounting Oversight Board (PCAOB), it is critical to understand the objectives,
strategies and associated business risks of companies. This comprehension is vital since it can
help in understanding the business risks that can be logically expected due to material
misstatement of financial statements (Louwers et al., 2018, p. 105). Business risks have the
potential to minimize the profitability of a company (Polinkevych et al., 2021). The business
goal that has been identified can increase the business risk of EarthWear Clothiers. According
to Auditing Standard 12 (15), new products and services give rise to business risks as there is
a possibility that the new offering will not be successful in the market (Louwers et al., 2018,p
.106). To evaluate its business risk, Wills & Adams must analyze its inventory turnover and
gross profit margin.
2. Management Assertions
Management assertions refer to the claims that have been made by the member of
management of an organization regarding certain aspects of the business. The manager may
claim that specific controls are in place that help in the achievement of the stated controlled
objective. It may also share pieces of evidence in order to support the assertions (Louwers et
al., 2018, p. 618). The independent auditor must utilize the internal control system to obtain
ample evidence. According to Auditing Standard 12 (04), the auditor has to plan as well as
perform audit procedures that will help in capturing sufficient and relevant evidence that can
act as a reasonable basis for establishing his or her opinions (Louwers et al., 2018,p . 20). The
management has made assertions and claims regarding the application of LIFO inventory
valuation approach which can directly impact the launch of the new product line to attract
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new customers. Wills & Adams must critically examine the inventory balance and inventory
management technique to check its claims.
3. Audit Risks
Audit risk can be defined as the risk that an auditor expresses as ‘an inappropriate
audit option’ when a company’s financial statements are considerably misstated (Louwers et
al., 2018, p.16). The auditor has to conduct an in-depth investigation process so that the level
of audit risk can be minimized or curtailed. In the context of EarthWear Clothiers, audit risk
can be reduced by performing their role with due diligence and making the optimum use of
auditing tools and techniques. The auditor must emphasize the requirements of the Securities
and Exchange Commission for the client business. The inventory management aspects must
be thoroughly checked to capture the risk of inventory misvaluation and damage.
4. Internal Controls
The internal controls that are in place offer ample assurance regarding the accuracy
and quality of information (Internal controls. Audit & Advisory Services, 2021). According
to Auditing Standard 22 (01) effective internal control over financial reporting is crucial as it
offers reasonable assurance in terms of the financial reporting of a company and the
preparation of the financial statements of the business. In the case of the client business, an
Electronic Data Interchange System is in place for performing diverse functions like
ordering, paying for goods and handing shipment receipts. The use of an automated system
along with a manual system increases audit risk. Thus, Wills & Adams must perform a
comprehensive check by focusing on independence, training and proficiency as well as due
professional care (Louwers et al., 2018,p . 129). A similar control framework must be used by
the auditing company while performing the audit activity so that uniformity can be
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maintained.
5. Effect on Audit Procedure
The audit procedures that are adopted by Wills & Adams for conducting the auditing
of the client business must take into account its business objectives. As the specific business
objective that has been identified relates to the creation of a new extreme sports product line
for the purpose of attracting new customers, the audit plan lays high emphasis on the
inventory management aspects. While designing this plan, some of the key elements that
have been integrated into the auditing procedure include the possibility of misevaluation of
the inventory materials, adoption of the LIFO inventory valuation approach and checking of
the inventory balance. It is necessary to make sure that the automated controls, as well as the
manual controls, boost the accuracy and efficiency of handling the inventory items. It is
essential to make sure that tracking and tracing of documents that capture inventory
movement are thoroughly integrated into the auditing procedure. However, a better picture of
the entire inventory population can be observed by checking for accuracy, obsolescence in a
sample of inventory or changes in valuation.
B. Materiality
In the auditing context, materiality is a broad concept. It involves not only the
justified amount that is captured but also the impact that the specific amount may have on
diverse contexts. While conducting the auditing of the financial statements of a business, it is
the responsibility of the auditor to ascertain the level of materiality that will be considered
(Materiality in audits. PwC, 2021). Issues relating to materiality may arise due to factors such
as omission or incorrect recording of accounting information. According to the materiality
guidelines of Wills & Adams, the quantitative materiality is computed as a % of the most
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relevant basis. In the case of the client business, the suitable basis is pretax. Thus, the pretax
income is the ideal basis to ascertain its materiality. The tolerable mismanagement % of
inventory must be considered to ensure proper flexibility exists while performing the auditing
activity.
After analyzing the management assertions, business risks, audit risk, effect on audit
procedures, internal controls, and materiality regarding the financial statements of EarthWear
Clothiers, it has been identified that the identified business goals can increase the business
risk of EarthWear Clothiers. Thus, it becomes important that Wills & Adams must analyze its
inventory turnover and gross profit margin to evaluate its business risk. Moreover, Wills &
Adams needs to critically examine the inventory management technique and inventory
balance to check its claims. Here, it is essential to check the inventory management aspects to
capture the risk of inventory misevaluation and damage. It has been identified that a similar
control framework should be used by the auditing company to perform the audit activity to
maintain uniformity. Further, the company needs to ensure the tracking and tracing of
documents that capture inventory movement are integrated into the auditing procedure. After
understanding the whole planning of the audit, it is crucial to understand the internal control
that has five components, such as control environment, risk assessment, control activities, and
monitoring activities. It will help to find out any potential gaps in material deficiencies and
misstatements. In order to avoid the risks of misstatements and improve the gaps, the internal
control part has also covered appropriate recommendations.
Part -3: Internal Control
Willis & Adams have undertaken the task of performing an audit for the client
EarthWear Clothiers. Five components of internal control have been evaluated. The core
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objective is to identify any potential gaps that might result in material deficiencies and
misstatements. The report also includes appropriate recommendations in order to improve the
gaps and avoid the risks of misstatements.
In order to conduct the evaluation of the internal control of EarthWear Clothier, the
COSO framework has been used. The main aim is to enable the firm to assess, establish, and
enhance the existing internal controls. COSO provides the firm with a roadmap to build a
foundation of internal control to monitor and mitigate organizational risks through effective
business decisions (Coso Internal Control – Integrated Framework, 2021).
A. Control Environment
The prominent factors of the control environment include the ethical values, integrity,
and competence of the people of the firm, the operating style and philosophy of the
management, the manner in which responsibility and authority are assigned by the
management, and the direction and attention provided (Internal controls. Audit & Advisory
Services, 2021). The control environment focuses on setting the tone of the organization and
influences the overall internal control system.
Appropriate control and solid control environment exist in the firm EarthWear
Clothiers. The organization is very serious about misstatements and takes proper measures in
order to mitigate the potential risks of misstatements. The firm makes use of the policies of
the conservative account. The Board of EarthWear Clothiers meets on a quarterly basis to
review the performance. They also meet in case there is a transaction or event affecting the
operations of the company. The Board consists of 4 independent members and 5 senior
management. Minutes of the meeting are properly maintained and kept by the corporate
secretary, and the board approves the minutes.
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EarthWear Clothiers has a well-designed organizational structure. The roles and
responsibilities are effectively communicated to the employees by the upper management.
The independent audit team of the firm consists of two directors who are not part of the
management team. The management of EarthWear Clothiers consults Willis & Adams in the
event of any accounting issues.
However, one of the gaps that have been identified in the EarthWear Clothiers is the
lack of a proper succession plan. For instance, Brad Norton, the controller of the firm, had to
leave unexpectedly. The gap between the leaving of the former controller and the
appointment of the new controller was long. Moreover, Willis & Adams has doubt regards
the appropriateness of the new controller for the position. In order to improve such gaps in
the future, it is recommended that EarthWear Clothiers must focus on the design and
implement a proper succession plan to avoid delay. The identified gap in terms of the control
environment is a significant deficiency.
B. Risk Assessment
Risk assessment refers to the analysis as well as identification of the potential risks for
the achievement of the organizational objectives. It forms the basis for the effective
management of risks (Internal controls. Audit & Advisory Services, 2021).
The current risk assessment policies of EarthWear Clothiers are well-designed and
effective. All the objectives of the firm have been clearly communicated as well as
monitored. The risk management department is responsible for identifying potential risks and
recommending appropriate actions. EarthWear Clothiers has a risk management committee
that oversees how future events are likely to impact the functioning of the firm. Monthly
meetings are held by the management of EarthWear Clothiers in order to discuss recent
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events. The management is well aware of the current risks thar are likely to affect the
organization. Moreover, the management also focuses on finding alternative product sourcing
to effectively meet the growing requirements in the event of increased competition. In terms
of current risk assessment, no gaps have been found by Willis & Adams.
However, the potential gap in risk assessment of EarthWear Clothiers could be a
material misstatement. It is a case of significant deficiency. In order to address the gap, it is
important to assess different accounts, such as revenues, cash, as well as receivables. Each of
the accounts carries a different level of risk. For instance, payroll and cash have the lowest
risk. On the other hand, revenue and receivables have the highest risk. Regular monitoring of
the accounts is vital to address the gap and lower the chances of material misstatements.
C. Information Systems
According to the COSO framework, information should be collected by the
management from both external and internal sources in order to effectively support the
components of internal control(Coso Internal Control – Integrated Framework, 2021). In
terms of standard as well as automated information systems, no notable issues have been
identified by Willis & Adams in the case of EarthWear Clothiers.
The standard information system of EarthWear Clothiers is open as well as free
flowing. The audit committee of the firm meets the external and internal auditors on a regular
basis in order to discuss the matters that affect the internal controls of the organization.
Information relating to the objectives of EarthWear Clothiers is properly analyzed and
monitored. Moreover, each of the departments of the organization provides its financial
reporting in a timely manner. All the employees of the firm are provided with clear
information relating to their duties and responsibilities. They are also provided with adequate
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training. EarthWear Clothiers has a system in place for reporting any policy violations.
Communication is open as well as transparent across all the departments of EarthWear
Clothiers.
The automated information system used by EarthWear Clothiers functions in the
correct manner. The automated system implemented by the organization is responsible for
maintaining accounts receivable, general ledger modules, integrated inventory, and payroll.
The system is properly integrated with the EDI system for streamlined operations of the firm.
The system ensures proper control as well as accountability.
In order to address the transaction gaps of the organization, EarthWear Clothiers has a
strategic plan. The information systems for financial reporting are updated on a regular basis.
The gap in terms of information systems is material weakness.
D. Control Activities
Control activities refer to the different activities established through procedures and
policies, ensuring that the management directives are carried out in the correct way. They
help in mitigating the potential risks to the attainment of the objectives of the firm (Coso
Internal Control – Integrated Framework, 2021). EarthWear Clothiers focuses on maintaining
good control. However, several gaps have been identified by Willis & Adams. One of the
gaps relates to intercompany transactions. The transactions are frequently material. In order
to address the gap, EarthWear Clothiers must design as well as implement a process for
reconciling intercompany accounts. Another gap is the improper transaction recording in the
subsidiary ledgers. This control failure is a significant deficiency that needs to be addressed.
To address this issue, the reconciliation of subsidiary ledgers is vital.
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E. Monitoring Activities
At present, EarthWear Clothiers has effective monitoring activities in place. Customer
complaints are addressed in a timely manner, and customer recommendations are taken into
consideration by the firm. In terms of monitoring activities of EarthWear Clothiers, no gaps
have been identified by Willis & Adams.
In order to address the current internal control failures, new internal controls must be
created by EarthWear Clothiers. The auditor must understand the control design implemented
by the firm and monitor the cashflows regularly. The succession plan of EarthWear Clothiers
must be monitored to ensure that employees are promoted and the important vacancies are
filled without delays. After the auditing activities have been carried out by the independent
auditing team, it is essential to communicate the results of the auditing process in an effective
and transparent manner. The insight can be of high value for the organization since it can
help to adopt suitable and effective internal control measures relating to the financial
reporting aspects. In the subsequent section, the focus has been laid on the communication
aspect so that the management of Earthwear Clothier will be able to identify the existing gaps
relating to internal controls that compromise the quality of the financial reporting activities.
Part 4: Communication
A. Letter to management
To: Management of Earthwear Clothier
From: Wills & Adams, Independent Auditor
Date: October 22, 2022
Subject: Gaps in internal control of Earthwear Clothier and resolutions to address them
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The professionals at Wills & Adams conducted a comprehensive audit of Earthwear Clothier
by adhering to the Public Company Accounting Oversight Board (PCAOB) standards. Based
on the evaluation, an unqualified opinion is presented on the firm’s internal controls over its
financial reporting mechanisms. The gaps that were identified have been highlighted in the
letter, along with suitable resolution techniques. The auditing has helped in identifying
several material weaknesses relating to intercompany transfers, accurate reconciliations, year-
end accruals and succession of leadership.
A major weakness was the inability of the business to make sure of the proper
reconciliation of the intercompany transfers. It gave rise to a material weakness. While
operating, Earthwear Clothier frequently transfers inventory materials between its warehouses
and assigns costs relating to the marketing activities to its business units. Even though these
intercompany
transactions are of material value, they are not regularly reconciled. It has given rise to the
issue of variance and discrepancy in intercompany accounts. It is recommended to adopt a
strict protocol for making sure that the reconciliation activities are conducted in a responsible
and accountable manner.
Another weakness that has been identified in Earthwear Clothier is that it has no proper
monitoring and recording of its year-end accruals. There is no cut-off practice for verifying
the accurate and timely recording of the firm’s period-end accruals. Due to the absence of
proper control, a major audit adjustment amounting to $ 3.578 had to be made. It is a material
weakness since the amount is over the materiality threshold of $ 2.1 million that has been
arrived at. To address the weakness, the firm must incorporate stringent accountability
practices and procedures to ensure the timely recording of year-end accruals.
Another weakness is the inability of the organization to prevent issues associated with the
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reconciliation of the subsidiary ledgers with the general ledger. There is no reconciliation
between the accounts receivable subsidiary ledgers and the general ledger. It has given rise to
a variance between the ledgers, and an adjustment worth $ 3,76,000 had to be made. Even
though the variance is below $ 2.95 million, which has been set as the tolerable misstatement
threshold, it is likely that the existing controls will fail to discover or prevent similar
misstatements of higher value. A suitable recommendation to address the weakness is to
design and adopt a robust protocol for ensuring timely and accurate reconciliations of general
ledger and subsidiary ledgers.
The final weakness that Wills & Adams has identified relates to the absence of proper
leadership succession planning in Earthwear Clothier. When Brad Norton departed, there was
no succession plan in place. Similarly, when Carol McKay was promoted to the position of
Controller, there was an absence of a succession plan. Norton’s unanticipated departure left a
gap in the organization due to the absence of a Controller. While Norton left in February, it
was not until November that McKay replaced him. Due to the absence of a Controller for an
extended period, the processes relating to authorization, supervision and verification were
compromised, increasing the possibility of fraud and errors. A suitable recommendation is to
develop a definite and efficient succession plan which can help in filling vacant positions
efficiently and train the personnel to adapt to the transition.
Thank you
Wills & Adams
B. Option of internal controls
To: Management of Earthwear Clothier
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From: Wills & Adams, Independent Auditor
Date: October 22, 2022
Subject: Internal Controls
The internal controls of Earthwear Clothier were audited by using the COSO framework and
PCAOB standards. It is the responsibility of auditors to ensure there exists reasonable
assurance showing that there exist proper internal controls over the financial reporting
function. The internal control of a firm must demonstrate the reliability of correct financial
reporting as well as the timeliness and completeness of the information. In the context of
Earthwear Clothier, robust internal control is crucial for identification of errors, or
misstatements.
Control deficiency is a material weakness that exists in the organization. It increases the risk
of material misstatement due to the absence of detection or prevention. The identified gaps
relating to poor reconciliation of intercompany transfers and the lack of proper monitoring
and recording of year-end accruals have led to the inaccuracy of financial records and
information. Due to these weaknesses, the firm’s internal controls over its financial reporting
have failed to prevent or detect material misstatements. The negative opinion about
Earthwear Clothier’s internal controls over its financial reporting is justified.
b b b Thank you
b b b Wills & Adams
b b b b C. Option of financial statements
To: Management of Earthwear Clothier
From: Wills & Adams, Independent Auditor
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Date: October 22, 2022
Subject: Opinion relating to Earthwear Clothier’s financial statements and internal control
The financial statements of the Earthwear Clothier organization, including its balance
sheet, comprehensive income statement, stockholder’s equity statement, and cash flow
statement, have been examined. Based on the evaluation and auditing activities, it can be said
that the financial statements give a true and accurate picture of the financial aspects of the
firm. The financial statements were prepared by taking into consideration the U.S. Generally
Accepted Accounting Principles (GAAP), and thus, the information that has been shared is
not misleading.
The internal controls that are in place in the organization have also been examined by the
auditor. Based on the COSO framework, it has been identified that the internal controls
over the financial reporting procedures and protocols are lacking and inadequate. An
adverse opinion has been formed by the independent auditors since the company has not
been able to introduce and implement robust internal controls, as a result of which several
weaknesses exist. Some of the chief material weaknesses that have been identified to
form the adverse opinion about the internal controls are poor practices relating to
intercompany transfers, reconciliation of general ledger with subsidiary ledgers and poor
recording practices of year-end accruals.
Thank you
Wills & Adams
Conclusion
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The auditing of Earthwear Clothier organization has been conducted by Wills & Adams,
an external auditing company. Some of the key elements that have been given high importance
during the auditing process are client engagement, planning of the audit activity, internal
control and communication of the audit results. The role of each of these activities is of
paramount importance since they can significantly impact the effectiveness of the auditing
process. It is vital to ensure that a solid engagement and communication network is in place
between the auditing firm and the client business so that a seamless flow of relevant
information will be possible, and an accurate evaluation of the internal controls can be
conducted. Initial interaction between the external auditor and the client is vital to get a
detailed insight into the client business and its industry. Similarly, effective communication at
the end of the auditing process is also essential since it can help the client business to identify
the gaps and weaknesses so that internal controls can be strengthened.
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References
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