The PCAOB's standard No. 2 specifically requires auditors to understand transaction flows in designing their test of controls. What steps does this entail?
What will be an ideal response?
This involves:
1. Selecting the financial accounts that have material implications for financial reporting. 2. Identify the application controls related to those accounts. 3. Identify the general that support the application controls.
The sum of these controls, both application and general, constitute the relevant internal controls over financial reporting that need to be reviewed.
PTS: 1
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