Investigating the effect of internal controls on the effectiveness of the audit program of empirical evidence from the members of the public accountants community of Iran

Abstract

Auditors generally evaluate the quality of the internal control system in companies to determine and design the audit program. The generally accepted principles of auditing state that the evaluation of the quality of the internal control system in determining the ability of the internal control system of the units in the control environment is necessary and essential before developing the audit plan, therefore there are many internal controls in companies such as the control environment, risk assessment, control activities and communications. This research examines the relationship between some components of the internal control system (such as the control environment, risk assessment and control activities) on the effectiveness of the audit program in Iran. Based on the distributed questionnaires, the results indicate the analysis It turned out that all three variables of the control environment, risk assessment and control activities have influenced the effectiveness of the audit program. Key words: internal controls, audit program, risk assessment, control environment, control activities, internal auditors.

First chapter

Overview

1-1- Introduction

Auditors generally evaluate the quality of the internal control system of the company under investigation in order to determine and plan the amount and process of audit work. Therefore, the accepted auditing standards in Standard No. 315 emphasize the necessity of evaluating the quality of the internal control system by an independent auditor and obtaining a proper understanding of the economic unit and the internal control environment before starting the audit process. The auditor must learn about the internal controls related to the audit. The auditor uses knowledge of internal controls to identify types of potential distortions, evaluate the factors affecting the risks of significant distortions, and design the nature, implementation schedule, and amount of necessary audit methods.

The lack of effective and efficient internal controls has overshadowed many business units in our country. Companies that design and implement their internal controls prudently can avoid the problems that will arise in the absence of these controls. The lack of effective internal controls has a negative impact not only on the operations of business units, but also on the independent audit process (Maham, 2011, p. 63). However, in the audit of financial statements, the evaluation of the effectiveness of internal controls is considered as one of the basic steps (Vadei and Kokhaki, 2017, p. 127). In today's world, generally increasing the quantity and quality of independent auditing is possible and possible by relying more on internal controls (Maham, 1381, p. 63).

In this research, the effect of internal control on the effectiveness of the audit program (experimental evidence from the members of the Certified Public Accountants Society of Iran) is examined and analyzed.

1-2- Statement of the research problem

The Association of Official Accountants of Iran takes place and considering that this society has a mission to provide facilities so that members can perform their professional services in the highest quality. In this regard, the responsibility of the community of certified accountants is to strive to protect public interests, protect the interests of interest groups and community members. According to this strategy, public interest prevails over collective interest and collective interest over individual interest.  It is obvious that extensive research needs to be done in order to implement this strategy.

In order to cope with the changes in its role and duties, the community of certified accountants needs to continuously revise its internal systems in order to equip itself for the future. Organizing and expanding the association of certified accountants, striving to expand the market and diversify professional services, improving and strengthening the quality of professional services, raising the level of monitoring the performance of members and supporting the professional rights and material and spiritual interests of members are among the activities that are considered for the upcoming years.In this research, an attempt will be made to examine the effect of internal control systems on the effectiveness of the audit program in order to improve the quality of the professional services of the members of the association. Auditors generally evaluate the quality of the internal control system of the company under investigation in order to determine and plan the amount of audit work. Therefore, generally accepted auditing standards (GAAS) in standard number 315 emphasize the necessity of evaluating the quality of the internal control system by the independent auditor and obtaining a proper understanding of the economic unit and the internal control environment before starting the audit process. The auditor must learn about the internal controls related to the audit. The auditor uses the knowledge of internal controls to identify the types of potential distortions, evaluate the factors affecting the risks of significant distortions and design the nature, implementation schedule and amount of necessary audit methods. Internal control has different meanings, which means that it is difficult to provide a suitable definition for internal control. This is because internal control can be described and viewed from different perspectives. However, internal control is defined as a process, which is influenced by the actions of the board of directors and other levels of the company's organizational structures, which is designed to provide reasonable assurance to achieve the company's goals, plans and strategy under the relevant laws, guidelines, policies and policies, laws and regulations. Recently, large companies have tried to include detailed management reports on the effectiveness and efficiency of internal control systems in their annual reports as an indicator of good corporate governance (Lang et al., 2011) [1]

However, the evaluation of the internal control system is mainly based on the evaluation of the quality of the company's internal control under three levels of scrutiny, including: appropriate internal control, inadequate internal control, and ineffective internal control. The effectiveness of the company's internal control system is generally recognized as a prerequisite for auditing processes. Because of that, it has taken into account the main factors determining the choice of timing and the extent to which audit methods and methods should be used or limited. However, companies may incorporate many methods in order to improve and develop internal control systems, such as dividing responsibilities, creating internal audit using efficient electronic information tools, and paying more attention to the skills of their employees by sharing them in periodic trainings and seminars. Based on this, internal control systems have many aspects that must be examined before starting the audit process, including evaluating the reliability and validity of the collected evidence, evaluating the strengths and weaknesses of various aspects of the internal control system, and then preparing a strict audit program based on the results of such evaluations. Therefore, it seems that internal control assessment is a prerequisite for programming the audit program, which is a prerequisite for the audit processes themselves.                                                                    

In this context, Joyce (1976) argued that independent auditors collect, evaluate and combine information in order to formulate an opinion about the fairness and reliability of various financial statements by performing professional judgment in determining the type and amount of information that should be collected and tested using a well-designed program.  Based on this, the audit planning processes include the preparation of audit plans after evaluating the internal control structure, reliability and risk. This, however, means that the independent auditors must evaluate internal control as part of the audit review. However, the audit plan provides all the details of the audit work necessary to achieve a professional work under various internal control situations. A wide set of laws focus on the importance of audit planning stage and have suggested more details in this field. For example, Auditing Standard No. 300 has pointed out the main benefits of user-friendly planning for auditing financial statements and required auditors to plan activities, including determining the nature, timing of implementation, and the amount of resources needed to perform the audit work. To help the auditors to achieve all the required tasks in an effective and efficient manner and in accordance with the standards of the auditing profession, to respond to the users of the financial statements.