Page 133 - DCOM204_AUDITING_THEORY

Unit 7: Internal Control

Sample questions on some of the above mentioned areas could include:- Notes

1. Is an organization chart readily available?
2. Does the organization chart show a clear definition and allocation of duties and
responsibilities of officials and employees?
3. Is a chart of Accounts in use?

4. Is the accounting records kept up-to-date?
5. Are they balanced monthly?
6. Are control accounts kept in the general ledger in respect of all transactions where the
volume justifies it?
7. Are subsidiary records reconciled with the respective control accounts periodically?
8. Are daily returns and reports received from branches/factories for collections, sales and
dispatches, production and receipt of goods?

9. Is an Internal Audit Manual in use?
10. Is there reconciliation of proofs of collection with amounts banked?
11. Is purchasing centralized in the purchase department?
12. Are purchases made only from approved suppliers?

7.6.3 Methodology for Adoption while using the Questionnaire

The Auditors may obtain answers on separate sheets, duly indexed against the questions to
which they relate. Inevitably a standard format for a questionnaire may not be feasible for
universal applicability as individual variations may be required. The following methods could
be adopted:
1. Answers could be compiled by the auditor on the basis of his observations and personal
interaction with the auditee.
2. Alternatively, the questionnaire may be given to auditee who could furnish answers on
separate sheets. The advantage of this method is that the auditee would have an opportunity
to review his own systems of internal control through the mere process of answering the
questionnaire.

3. The auditor should then conduct a test check in order to ascertain the accuracy of the
replies and the actual operation of the system.
4. All negative answers are to be reviewed by the auditor with the auditee. The auditor may
also decide whether any qualification would be necessary in his report.
5. In the light of the questionnaire, the auditor should formulate his Audit Plan and
Programme.
6. A review of the questionnaire, in the event of any major changes that may have taken
place in the auditee organisation, should be conducted by the auditor.

7.6.4 Systems Based Audit (SBA)

As can be seen from the nature of the above sample questions, the objective of the auditor is to
formulate an opinion on the existence, effectiveness and adequacy of internal controls and
whether these are designed as far as possible, to ensure the completeness and accuracy of records

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