Page 64 - DCOM509_ADVANCED_AUDITING

Unit 4: Internal Control

 Controls to prevent unauthorised amendments to data files Notes
 Controls to ensure continuity of operation, for example, storing extra copies of programs
and data files off-site, protection of equipment against fire and other hazards, backup
power sources, disaster recover procedures or maintenance agreements and insurance.

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Caution Internal control can provide only reasonable assurance – not absolute assurance –
regarding the achievement of an organization’s objectives.
Use of Internal Control Systems by Auditors: An internal control can only provide, at best, a
reasonable assurance that objectives are being reached because of inherent limitations, such as,
human error and potential for fraud. These inherent limitations demonstrate why auditors
cannot obtain all their evidence from tests of the systems of internal control.

Self Assessment

State whether the following statements are True or False:
6. General control and application controls in a computerised environment.
7. The proxy disclosure rules create opportunities for internal auditors to report on and
provide their opinions about their organization’s compliance with its own governance
and risk assessment requirements.

8. In particular, auditors may need to express opinions in the areas of corporate governance,
risk management, and internal controls.
9. Internal controls help safeguard funds, provide efficient and effective management of
assets, and permit accurate financial accounting.
10. Internal controls cannot eliminate all errors and irregularities, but they can alert
management to potential problems.
11. Effective controls reduce the risk of asset loss and help ensure that plan information is
complete and accurate, financial statements are reliable, and laws and regulations are
complied with.

4.5 Basic principles governing Internal Control

Following are given, in a summarized form, some of the important basic principles governing
internal control:
1. A proper system, preferably in writing, must be implemented in the entity, in such a way
that origination, recording and accounting of business transactions take place in a
standardized way.
2. The authorities and responsibilities of every official should prefix and must be in writing.
3. Accounting entries should not be allowed without a supporting document.

4. A standard system of internal check should be established in such a way that no person
alone handles a transaction completely from beginning to end and the work of every
person is in the ordinary course checked by another person in the same or another
department.
5. Responsibility for the custody and control of assets should be segregated from the
responsibility of accounting for the assets. In other words, persons having the custody or

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