FUNDAMENTALS OF AUDITING ACC311 Lec 16
Lesson 16
57
DOCUMENTING THE INTERNAL
CONTROL SYSTEM
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.
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
controls.
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
responsibility.
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.
Post a Comment
Don't Forget To Join My FB Group VU Vicky
THANK YOU :)