Page 180 - COSO Guidance

Inquiries

AU-C section 315 provides examples of inquiries of others within the entity and examples of information
that might be obtained. Inquiries of those charged with governance could help the auditor understand the
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environment in which the financial statements were prepared. Inquiries of the internal audit function
could be directed toward learning the internal auditors’ involvement in the design and effectiveness of
internal control and whether management has responded to internal audit findings. The auditor might
ask employees who are involved in the initiation, authorization, processing, or recording of complex or
unusual transactions how these activities are accomplished. This would help the auditor evaluate the
appropriateness of the selection and application of accounting policies.

The auditor could also inquire of in-house legal counsel concerning

 Litigation,
 compliance with laws and regulations,
 knowledge of fraud or suspected fraud,
 warranties and post-sales obligations,
 arrangements with business partners (joint ventures), and
 other matters.
Finally, marketing, sales, and production employees might provide information relating to changes in the
entity’s marketing strategies, sales trends, production strategies, and contractual arrangements.

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GAAS states that the term “those charged with governance” means the person(s) with responsibility for
overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This
includes overseeing the financial reporting process. In some cases, those charged with governance are responsible
for approving the financial statements (in other cases, management has this responsibility). Those charged with
governance may include management personnel, for example, executive members of a governance board, or an
owner-manager.

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