Auditing and Internal Control - legal frame, risk approach and reporting
This domain covers statutory audit and internal control as practised in Algeria. The legal frame is Loi 10-01 of 29 June 2010 on the professions of expert-comptable, commissaire aux comptes and comptable agréé, with the CNCC regulating the audit profession and the Normes Internationales d'Audit (ISA) as the technical reference. Expect questions on the opinion, materiality, risk assessment and the COSO model.
Legal frame
- The commissariat aux comptes is mandatory in sociétés par actions and in other entities that cross thresholds of turnover, balance-sheet total or headcount set by regulation.
- The mandate runs for three financial years and is renewable. The auditor must remain independent and cannot combine the statutory audit with bookkeeping or expert-comptable work for the same client.
- Four possible conclusions: certification sans réserve, certification avec réserve, refus de certifier (opinion défavorable), impossibilité de certifier.
Risk-based method
- Understand the entity, its environment and its internal control, then assess the risks of material misstatement at financial-statement level and at assertion level.
- Respond with tests of controls where controls are relied upon, and with substantive procedures in all cases; the two are complementary, not alternatives.
- COSO's five components: control environment, risk assessment, control activities, information and communication, monitoring activities.
- Document work so that an experienced reviewer can re-perform the judgment: programme, sample basis, evidence, conclusion.
Worked example
Turnover is 600,000,000 DA and the firm's policy sets overall materiality at 0.5% of turnover, i.e. 3,000,000 DA. The summary of uncorrected misstatements shows 2,200,000 DA and 1,100,000 DA, aggregating to 3,300,000 DA. Each item alone is below materiality, but the aggregate exceeds it, so the auditor requests adjustment; if management refuses and the effect is material but not pervasive, the opinion is qualified with a clear description of the matter and its quantified effect.
Traps
- Calling a management-letter recommendation a "réserve" in the audit report.
- Reducing substantive testing merely because the client runs an ERP.
- Setting materiality on profit only, when the benchmark should reflect the users of these accounts.
- Treating the management representation letter as a substitute for audit evidence.
- Failing to evaluate the design of a control before testing its operating effectiveness.