Document Internal controls

Question 1

Methods of obtaining info documentation

Answer 1

Have an enquiry: Chat with directors/financial staff etc.

This could also include questionnaires

Have an inspection of: look at board minutes, procedure manuals and previous year audit files.

Have an observation: Watch staff carry out controls (walk through)

Question 2

Different ways to record documentation of internal controls

Answer 2

Narrative notes- word docs etc

Diagrams- flow charts, family trees, organisation charts

Questionnaire- can be open or closed. Used to assess strengths/ weaknesses of internal controls.

Question 3

Ad/dis of Narrative notes

Answer 3

AD-Easy to understand and prepare

Dis- Not good for complex systems

Question 4

Ad/ dis of internal control questionnaire

Answer 4

Ad-Easy to complete

Aids memory of systems- helps the auditor remember what to check when reviewing the internal controls

Dis- Don’t work well when systems are not standard and unique.

Often encourages the auditor to ask standard questions rather specifically suited top systems to “tick a box”

Question 5

Flow charts

Answer 5

AD-Often comprehensive and easy to follow

Dis-Difficult to prepare and time consuming.

Question 6

Organisation chart

Answer 6

AD-Great for recording relationships and reporting lines

Dis- As well as flow charts, this is usually something more efficiently prepared by the client rather the auditor.

Only show the reporting lines/ relationship. Does not help understand the systems where as flowchart would.

Question 7

What is a walk through procedure and what is the purpose

Answer 7

Usually occurs at the field work stage of the audit.

It involves tracing transactions from the beginning to the end of an audit.

It is done to ensure the auditor understands the control rather than testing if it actually works.