Auditing and Assurance Standards and Guidance

Auditing Standards (Ireland)

FRC ISAs (UK and Ireland) applicable for periods beginning on or after 15 December 2010 but before 17 June 2016

ISA (UK and Ireland) 315 Identifying and assessing the risk of material misstatement through understanding the entity and its environment

ISA (UK and Ireland) 315 applicable for periods ending on or after 15 December 2010

Application and Other Explanatory Material

The Required Understanding of the Entity and Its Environment, Including the Entity's Internal Control

The Entity's Internal Control (Ref: Para. 12 )

Components of Internal Control— Control Environment (Ref: Para. 14 )

A69.

The control environment includes the governance and management functions and the attitudes, awareness, and actions of those charged with governance and management concerning the entity's internal control and its importance in the entity. The control environment sets the tone of an organization, influencing the control consciousness of its people.

A70.	Elements of the control environment that may be relevant when obtaining an understanding of the control environment include the following:

(a)

Communication and enforcement of integrity and ethical values – These are essential elements that influence the effectiveness of the design, administration and monitoring of controls.

(b)

Commitment to competence – Matters such as management's consideration of the competence levels for particular jobs and how those levels translate into requisite skills and knowledge.

(c)

Participation by those charged with governance – Attributes of those charged with governance such as:

Their independence from management.

Their experience and stature.

The extent of their involvement and the information they receive, and the scrutiny of activities.

The appropriateness of their actions, including the degree to which difficult questions are raised and pursued with management, and their interaction with internal and external auditors.

(d)

Management's philosophy and operating style – Characteristics such as management's:

Approach to taking and managing business risks.

Attitudes and actions toward financial reporting.

Attitudes toward information processing and accounting functions and personnel.

(e)

Organizational structure – The framework within which an entity's activities for achieving its objectives are planned, executed, controlled, and reviewed.

(f)

Assignment of authority and responsibility – Matters such as how authority and responsibility for operating activities are assigned and how reporting relationships and authorization hierarchies are established.

(g)

Human resource policies and practices – Policies and practices that relate to, for example, recruitment, orientation, training, evaluation, counselling, promotion, compensation, and remedial actions.