We have already seen that the external auditor is required to understand a client's accounting and internal control systems. Having documented the system, the auditors will decide which controls, if any, they wish to rely on and plan tests of controls to obtain all the evidence to determine whether the controls are properly designed and have operated effectively throughout the period to be audited.
The syllabus examines six systems sales, purchases, payroll, inventory，cash and non-current assets. For each system, we will identify the main risks, which related to the systems, then look at the controls that the business could put in place to minimize the risks identified. Finally, we will consider the different tests of control that auditors will carry out to determine whether these controls have operated effectively.
We end this chapter by considering the report to management submitted to the directors and management of an entity and the reports that may be issued by the internal auditors. The report to management summarizes the significant deficiencies the auditor has identified in the entity's systems during their testing. It should explain the deficiency and its implication for the entity as well as recommending the appropriate action that should be taken by management and those charged with governance.
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