The auditor needs to obtain the same degree of assurance in order to give an unqualified opinion on the
financial statements of both small and large entities. However, many controls which would be relevant to
large entities are not practical in the small business. For example, in small business accounting work
may be performed by only a few persons. These persons may have both operating and custodial
responsibilities, and segregation of functions may be missing or severely limited. Inadequate segregation
of duties may, in some cases, be offset by owner/manager supervisory controls which may exist
because of direct personal knowledge of the business and involvement in the business transactions. In
circumstances where segregation of duties is limited or evidence of supervisory controls is lacking, the
evidence necessary to support the auditor’s opinion on the financial information may have to be
obtained largely through the performance of substantive procedures.
INTERNAL CONTROL IN THE SMALL BUSINESS
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