EXAMINING THE SAS 300 REQUIREMENT FOR EFFECTIVE INTERNAL CONTROL

Statement of Auditing Standard (SAS) 300 emphasizes the importance of the role of effective internal control procedures in corporate governance, along with the need for auditors to be fully familiar with the internal control systems in organizations that they are called upon to audit (Auditing Practices Board, 1995). SAS 300 was issued by the Auditing Practices Board in 1995 ("Introducing the new SASs," 1995). Before the 1995 version of SAS 300 was issued, SAS 300 dealt only with risk assessment. The 1995 version deals with both risk assessment and internal controls ("Revision Of Auditing Standards And Guidelines," 1993). The SAS 300 requirements noted above are investigated within the context of three focal issues, as follows: (1) the essentials required for an effective internal control function are examined; (2) the effects of the SAS 300 requirements on the internal audit function are discussed; and (3) actions that should be taken by an external auditors to establish the reliability internal audit data are considered.

Essentials Required for An Effective Internal Audit Function

The Report of the Committee on the Financial Aspects of Corporate Governance, more generally known as the Cadbury Report taken from the name of the Committee Chair Adrian Cadbury, noted that "an effective internal control system is a key aspect of the efficient management of a company" (Committee on th

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nsaction types affecting the same financial data elements that will cause an EDP environment to significantly affect the external auditing function. A second test is concerned with the potential that the greater the number of diverse users that share financial accounting data, the greater the impact of the database environment on the accounting information. This test means simply that, when a wide spectrum of organizational units within a firm have access to financial accounting data contained in a database, the EDP environment will significantly affect the external auditing function. A third test three concerns the type of access individuals within an organization have to financial accounting data within a database. If the access is generally restricted to an ability to read the data, the effect of the EDP environment on the accounting function will be lessened. If, on the other hand, those who access the financial accounting data within a database have the ability to delete and update the data, the EDP environment will have a significant impact on the external auditing function. A fourth test is concerned with the definitions and directory system of an EDP financial database. A database with an accurate and complete dicti
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Approximate Pages = 13 (250 words per page)