Question

An auditor is auditing a mutual fund company that uses a transfer agent to handle accounting for shareholders. What would be the most efficient way to obtain information about the transfer agent's internal controls?

1) Review the transfer agent's financial statements
2) Conduct interviews with the transfer agent's employees
3) Observe the transfer agent's daily operations
4) Request documentation of the transfer agent's internal control procedures

Answer 1

Requesting documentation of the transfer agent's internal control procedures is the most efficient way for an auditor to understand the internal controls during a mutual fund company audit.

Step-by-step explanation:

The most efficient way to obtain information about the transfer agent's internal controls when auditing a mutual fund company would be to request documentation of the transfer agent's internal control procedures. While reviewing financial statements, conducting interviews, and observing daily operations can provide insights, these methods are more time-consuming and may not give as direct an understanding of the control systems as the actual documentation.

The transfer agent's internal control documents will offer a detailed and formalized description of the procedures and controls in place to ensure accurate and reliable shareholder accounting and prevent fraud.