Documenting Internal Controls: What, Who, Where, and Why?

This chapter addresses internal control documentation, internal control definitions and requirements, and selected evaluation aspects of internal controls. The concept of increasing the audit attention given to internal controls has been gaining momentum for years. Over the years, increasing attention and concern has been directed by Congress in its laws and Federal Agencies in their regulations toward the importance of the auditee's internal control structure. Depending on the conclusions concerning the operating effectiveness of the internal controls over financial reporting and the controls over compliance with laws and regulations, the auditor will either proceed to complete the planned substantive auditing procedures or, if indicated by test results, revise and increase the extent of previously planned substantive auditing procedures to reduce audit risks to a more tolerable level.