Lesson: Top-Down Approach to Testing

In this lesson, a detailed explanation of the top-down approach to testing controls in integrated audits is provided. The discussion begins with entity level controls, which are overarching controls that have a pervasive effect on a firm's internal controls, and provides examples such as whistleblower hotlines and variance analysis reporting. The lesson clarifies the difference between entity level and non-entity level controls. The top-down approach is then outlined, starting with assessing the overall entity-level risks, then examining entity level controls, moving down to significant accounts and disclosures, understanding likely sources of misstatement, and selecting controls to test. This approach enables the auditor to efficiently identify and assess relevant controls while focusing on the most critical aspects of a company's operations and reporting.