Page 57 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes
Example: A fixed price list may serve as an official authorization of price for a large sales
staff. In addition, there may be a control to allow a sales manager to authorize reason able
deviations from the price list.
3. Adequate documents and records provide evidence that financial statements are accurate.
Controls designed to ensure adequate record keeping include the creation of invoices and
other documents that are easy to use and sufficiently informative; the use of pre-numbered,
consecutive documents; and the timely preparation of documents.
4. Physical control over assets and records helps protect the company’s assets. These control
activities may include electronic or mechanical controls (such as a safe, employee ID cards,
fences, cash registers, fireproof files, and locks) or computer-related controls dealing with
access privileges or established backup and recovery procedures.
5. Independent checks on performance, which is carried out by employees who did not do
the work being checked, help ensure the reliability of accounting information and the
efficiency of operations.

Example: A supervisor verifies the accuracy of a retail clerk’s cash drawer at the end of
the day. Internal auditors may also verity that the supervisor performed the check of the cash
drawer.
According to SA 400: “Risk assessment and internal control” issued by the Institute of Chartered
Accountants of India, internal control relating to accounting system are meant to accomplish the
following objectives:
 To ensure that transactions are executed in accordance with management’s general or
specific authorization.
 To ensure that all transactions are promptly recorded in the correct amount in the
appropriate accounts and in the accounting period in which these are executed so as to
permit preparation of financial information within a framework of recognized accounting
policies and practices and relevant statutory requirements, if any, and to maintain
accountability for assets.
 To ensure that assets are safeguarded from unauthorized access, use or disposition.

 To ensure that the recorded assets are compared with the existing assets at reasonable
intervals and appropriate action is taken with regard to any differences.

Self Assessment

State whether the following statements are True or False:
1. Effective internal control is not a built-in part of the management process.

2. Internal control is the process designed to ensure reliable financial reporting, effective
and efficient operations, and compliance with applicable laws and regulations.
3. Safeguarding assets against theft and unauthorized use, acquisition, or disposal is not the
part of internal control.
4. In order to identify and establish effective controls, management must continually assess
the risk, monitor control implementation, and modify controls as needed.
5. Top managers of publicly held companies must sign a statement of responsibility for
internal controls and include this statement in their annual report to stockholders.

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