Reference no: EM132007088

Question - Michael and Susan were ABAA classmates who are employed by different CPA firms. One day during a lunch they discussed about the importance of internal control in determining the amount of audit evidence required for an audit engagement.

Michael thinks that internal control must be evaluated carefully for all companies irrespective of their sizes. On every audit he uses a standard internal control questionnaire and a flowchart of every business cycle. After careful evaluation of a system, he modify the evidence accumulated based on the controls and deficiencies identified.

Susan however believes that internal controls are not adequate in small companies and hence she just ignores internal control and audit her client based on the assumption of inadequate controls. She does not wish to waste time and effect obtaining an understanding of internal control and assess control risk because she knows it has all kinds of weaknesses. She would rather perform substantives tests.

Required

1. Explain the major differences between possible controls available to large and small companies.

2. Comment on Michael and Susan approaches.

3. When auditing the financial statements of listed companies, what additional procedures Michael must perform over internal controls?