Page 65 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes control of assets and those responsible for the accounting in respect of them should not be
same.
6. The internal control system should be in consonance with the organizations structure. As
far as possible, controls should be in built in the operating functions.

Example: The establishment of a separate credit control department would not be justified
if the objective of reducing credit risk and minimizing debt recovery period could be met
through controls in built in the accounting and sales system especially in smaller and medium
sized concerns.
7. Every internal controls should be established after a cost and benefit analysis.

8. Books of accounts should be maintained up to date.
9. The entity must have a system of rotation of duties among employee. Employees should
be encouraged to take permissible leave. This is more applicable to those employees who
are custodian of assets like cashier who deals in receipts and payment of cash.
10. The system should have inbuilt verification system from independent records.

Example: Verification of Bank balances from bank statement, comparison of purchase
ledger account with supplier statement etc.

11. The system should facilitate the surprise physical verification of assets with the records.

Example: Surprise cash verification can be conducted by the officials, other than accounts
department. Surprise inventory can be verified by officials from accounts department etc.
12. A reliable and accurate Management Information System (MIS) should be in place to
support the internal control system, so that immediate corrective actions can be taken if
needed.

In conclusion, it may be said that the attitude of top management plays a very important role in
establishment of an effective internal control. Internal auditor, external auditor and other auditors
(if any) are in fact deficiency finders. It is the management who take corrective actions until and
unless, they are keen to establish the required internal control, it will not function properly. So,
the attitude of management regarding internal control will decide the effectiveness of internal
control system in any organization.

Self Assessment

Fill in the blanks:

12. Accounting entries should not be allowed without a ………………….. document.
13. Persons having the custody or control of assets and those responsible for the ………………..
in respect of them should not be same.

4.6 Internal Auditing

Performed by professionals with an in-depth understanding of the business culture, systems,
and processes, the internal audit activity provides assurance that internal controls in place are
adequate to mitigate the risks, governance processes are effective and efficient, and organizational
goals and objectives are met.

60 LOVELY PROFESSIONAL UNIVERSITY