Gaining sufficient knowledge of the internal control system structure
The first step in any audit work is to gain knowledge of the employer's internal control system; Because the type and limits of the methods that should be implemented in each audit task depend significantly on the effectiveness of the employer's internal control system in preventing the occurrence of important mistakes in the financial statements. Before being able to evaluate the effectiveness of the internal control system, auditors must obtain information about how the said system works, that is, they must know what methods are implemented, who performs them, what controls are in place, How are different types of transactions processed and recorded and what documents are there about them.
Acquiring knowledge of the internal control system is the basis for audit planning and control risk estimation, and with this knowledge, auditors can:
Identify potential types of financial statement misstatements, and design more effective substantive tests to address financial statement items.
