Page 132 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes and the recording of the transaction , are assigned to different departments or to different
individuals within the accounting department, in a computerized environment, these
incompatible functions may be consolidated within the EDP department. Therefore the need
arises for alternative controls including:-
1. Organization controls with appropriate segregation of duties within the EDP Department.

2. Sound personnel practices with effective control over the quality of work.
3. Standard operating procedures for ensuring high quality processing and limiting the
possibility of errors as also the unauthorized use of files, programs and reports.

4. Systems development and documentation controls.
7.6.1 Methodology for Evaluation

Evaluation of internal control systems can be done in a variety of ways. It would be reasonable
to expect that the desired degree of documentation would be in proportion with the size and
activities of the organization. The following are the general methods adopted:-
1. Appraisal by workflow
2. Appraisal by duties
3. Appraisal by questionnaire

The adoption of any of the above methods does not preclude the use of one or more methods in
connection.

7.6.2 Internal Control Questionnaire

Evaluation of Internal Controls by the questionnaire methods (used in conjunction with other
methods.) is a convenient and efficient medium for documented evidence of such review having
actually taken place.

A standard Internal Control Questionnaire has therefore, been presented by the Research
Committee of Chartered Accountants of India. The questions are so framed that most of the
answers can be given by “Yes” or “No” or “Not applicable”. Affirmative answers generally indicate
good internal controls while negative answers indicate weaknesses. In such cases, it would be
advisable to add explanatory note. The arrears of coverage by the questionnaire relate to:
1. Cash and Bank Receipts
2. System of Accounts in Branches and Factories
3. Cash and Bank Payments
4. Salaries and Wages
5. Purchases and Creditors
6. Sales and Debtors
7. Investments
8. Stocks
9. Fixed Assets

10. Borrowings
11. Share Capital
12. Loans and Advances.

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