Lesson 16


Benefits of Internal Control to the entity
Based on our previous studies we can now identify the following principal benefits that may arise for an
entity from a sound system of internal control: 
a) Assurance that all transactions are completely and accurately processed.
b) Confidence that only authorized transactions takes place.
c) Assurance that adequate documentation supporting transactions is created and retained.
d) Assurance that the company’s assets and liabilities are correctly stated, in order for them to 
make informed decisions on the operations of the business.
e) Minimization of the risk of fraud and misappropriation of assets. 

Benefits of Internal Control to the auditor
Of course, if the audit client benefits from a sound system of internal control, it is likely that the auditor will
also be benefited. All of the above stated benefits help to promote a situation where the financial statements
present a true and fair view. In simple terms, a good system of internal control will make life easier for the

Auditor’s work on the Internal Control
International standards on auditing emphasize the importance of internal control to the auditor by stating
that auditor should: 
a) Obtain an understanding of the accounting and internal control system sufficient to plan the
audit and develop an effective audit approach, and 
b)  Use professional judgment to assess the components of audit risk and to design audit
procedures to ensure it is reduced to an acceptably low level. 
At an early stage in their work auditors will have to decide the extent to which they wish to place reliance on
the internal controls of the enterprise. As the audit proceeds, that decision will be kept under review and,
depending on the results of their examination, they may decide to place more or less reliance on these

Categories of Internal Control
These are often summarized by using the mnemonic SOAP MAPS as follows: 
a) Supervision
b) Organization 
c) Arithmetic and Accounting 
d) Physical
e) Management and Monitoring
f) Authorization 
g) Personnel 
h) Segregation of duties 

a) Supervision 
 There should be adequate supervision of work to ensure that controls are being complied with. 
Possible application
: a supervisor or manager reviews and checks the work of a subordinate.  
b) Organization
 Enterprises should have a formal, documented organization structure with clear lines of
Possible application
: lines of authority within an organization make it clear which individuals are responsible 
for decisions and transactions
c) Arithmetic and Accounting  
 The company should ensure that there are adequate controls to ensure the completeness and
 accuracy of its financial records.  

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