Page 57 - Internal Auditing Standards

Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts

Exhibit 5.3-1

Assignment of authority/responsibility

Organizational structure

Management’s philosophy and operating style
Communication
of entity values
Governance structure and practices
and commitment
to competence

Human resources
policies and
procedures

Control environment controls will influence the auditor’s evaluation of the effectiveness of other specifi c
control activities that may address specific areas such as sales and purchase transactions. For example, if

management has a negative attitude toward control in general, this will undermine the effectiveness of other
controls (such as sales, etc.) no matter how well they were designed.
The auditor’s evaluation of the design of the entity’s control environment would include the elements set out below.

Exhibit 5.3-2

Key Elements
Description
to Address
Communication Integrity and ethical values are essential (foundational) elements, which infl uence the
and Enforcement effectiveness of the design, administration, and monitoring of other controls.

of Integrity and
Other Ethical
Values
Commitment to Management’s consideration of the competence levels for particular jobs, and how
Competence those levels translate into requisite skills and knowledge.

Participation by Attributes of those charged with governance such as:
Those Charged • Their independence from management;
with Governance • Their experience and stature;
• The extent of their involvement and the information they receive, and the
scrutiny of activities; and
• The appropriateness of their actions, including the degree to which diffi cult
questions are raised and pursued with management, and their interaction with
internal and external auditors.

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