Methods Employed By An Auditor In Reviewing A Business Internal Control Scheme

Methods Employed By An Auditor In Reviewing A Business Internal Control Scheme

An auditor employs one of the following methods to evaluate the internal control scheme adopted by the business organization. The methods include

  1. The narrative record made by the auditor. An auditor prepares a detailed description of the business system as found in the organization. It can be based on the real-time testing like QProfit System or as per his observation on the working of different departments.

 

  1. The second type includes the formulation of the checklist. This lists a series of queries, instructions and answers like yes, no or not applicable. These are framed on the basis of control required for work requirement. Examples of such queries or instructions include

 

  • Are tenders advertised before actually placing orders?
  • Is there a written order for purchases made?
  • Is there a standardized purchase order form?
  • Who controls the stocks accounts? Is he involved in the working of other departments?

The whole checklist is precisely analyzed by the manager and senior officials before implementing it.

  1. Another internal control measure is the questionnaire prepared in connection with the concerned internal control scheme. This forms a comprehensive series of questions framed from the information collected on the company’s internal control features like its subsistence, functioning, and

 

Advantages

  • The characteristic element of this approach is that any kind of lapse on internal control review is less likely to occur while adopting this method.
  • Further, the questionnaire enables a one-time internal control evaluation or conducting by means of allocating different sessions.
  • Moreover, this form is really helpful in finding out the control defects and is executed once in a year together with recording the review details.
  • Here, the presentation of answers like yes and no denotes the satisfactory position and the weakness respectively. Further provisions are discussed on the weak areas and explanations are discussed in detail. If the queries seem to be irrelevant to the business principles, then they are indicated as the ‘Not applicable’ reply.
  • The whole questionnaire form is presented to the client on an annual basis and they need to get it filled by the concerned board members and the company staffs. On examining, if any answers are found inconsistent, the matter is forwarded to be discussed by the auditor staff with employees of the organization. The auditor then precedes to prepare a report of flaws and recommendation for correction.