What is Compensating control?
In short
A compensating control reduces the risk left by a deficiency in another control, such as an owner reviewing all bank statements and cancelled checks in a small business that can't fully segregate duties.
Key takeaways
- The auditor must test it before relying on it.
- It can reduce the severity of a deficiency, but doesn't remove the deficiency itself.
- It must operate at a level of precision that would catch a material misstatement.
Where it's tested
AUD: Understanding the Entity & Internal Control — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In a financial statement audit of a nonissuer, which of the following is required in every audit?