Easy Clean 2006
Easy Clean, Co.:
Evaluation of Internal Control Environment[1]
LEARNING OBJECTIVES
Evaluate a new audit client 's control environment.
Provide an initial evaluation of certain components of the client 's control environment
Appreciate the judgment involved in evaluating the overall internal control environment based on interview data
Provide support for your internal control assessments
Ted is a manager in the Business Advisory and Assurance Services division of a national public accounting firm. He has been given the job of managing the audit of Easy Clean, Co., which provides industrial and domestic carpet steam-cleaning services. Easy Clean has never been audited. Thus, Ted does not have any prior-year working papers to review. Ted recently conducted a preliminary interview with Doug Dosio, who along with his brother, Phil, owns Easy Clean. Ted 's objective for the interview was to establish an understanding of the control environment. To prepare for his interview, Ted reviewed professional auditing standards. Those auditing standards (AU 319) indicate that the control environment "sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure." The standards state that control environment factors include the following: 1. Integrity and ethical values 2. Commitment to competence 3. Board of directors or audit committee participation 4. Management 's philosophy and operating style 5. Organizational structure 6. Assignment of authority and responsibility 7. Human resource policies and practices Based on the interview dialogue provided below, you will be asked to evaluate the seven components of the client 's control environment noted previously in order for you to make an evaluation of the overall internal control environment. Before reading the interview
Evaluation of Internal Control Environment[1]
LEARNING OBJECTIVES
Evaluate a new audit client 's control environment.
Provide an initial evaluation of certain components of the client 's control environment
Appreciate the judgment involved in evaluating the overall internal control environment based on interview data
Provide support for your internal control assessments
Ted is a manager in the Business Advisory and Assurance Services division of a national public accounting firm. He has been given the job of managing the audit of Easy Clean, Co., which provides industrial and domestic carpet steam-cleaning services. Easy Clean has never been audited. Thus, Ted does not have any prior-year working papers to review. Ted recently conducted a preliminary interview with Doug Dosio, who along with his brother, Phil, owns Easy Clean. Ted 's objective for the interview was to establish an understanding of the control environment. To prepare for his interview, Ted reviewed professional auditing standards. Those auditing standards (AU 319) indicate that the control environment "sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure." The standards state that control environment factors include the following: 1. Integrity and ethical values 2. Commitment to competence 3. Board of directors or audit committee participation 4. Management 's philosophy and operating style 5. Organizational structure 6. Assignment of authority and responsibility 7. Human resource policies and practices Based on the interview dialogue provided below, you will be asked to evaluate the seven components of the client 's control environment noted previously in order for you to make an evaluation of the overall internal control environment. Before reading the interview