Response to the following problem:
Johnson, CPA, has been engaged to audit the financial statements of Rose, Inc., a publicly held retailing company. Before assessing control risk, Johnson is required to obtain an understanding of Rose's control environment.
Required:
a. Identify additional control environment factors (excluding the factors illustrated in the following example) that set the tone of an organization, influencing the control consciousness of its people.
b. For each control environment factor identified in part (a), describe the components and why each component would be of interest to the auditor.
Integrity and Ethical Values
The effectiveness of controls cannot rise above the integrity and ethical values of the people who create, administer, and monitor them. Integrity and ethical values are essential elements of the control environment, affecting the design, administration, and monitoring of other components. Integrity and ethical behavior are the products of the entity's ethical and behavioral standards, how they are communicated, and how they are reinforced in practice.