Page 70 - DCOM509_ADVANCED_AUDITING

Unit 4: Internal Control

4.10 Keywords Notes

Accounting Controls: The plan of organization and all methods and procedures that are concerned
mainly with, and relate directly to, safeguarding of assets and the reliability of financial records.

Administrative Controls: The plan of organization and all methods and procedures that are
concerned mainly with operational efficiency and adherence to managerial policies, and usually
relate only indirectly to the financial records.
Control Activities: Control activities are the specific policies and procedures management uses
to achieve its objectives.
Control Environment: The control environment is the control consciousness of an organization;
it is the atmosphere in which people conduct their activities and carry out their control
responsibilities.
Detective Controls: Designed to find errors or irregularities after they have occurred.
Internal Auditing: Internal auditing is an independent, objective assurance and consulting activity
designed to add value and improve an organization's operations.
Internal control: Internal control is the process designed to ensure reliable financial reporting,
effective and efficient operations, and compliance with applicable laws and regulations.

Preventive Controls: Designed to discourage errors or prevent irregularities from occurring.
They are proactive controls that help to prevent a loss.
Statement on Standard Auditing Practices (SAP): The Statement on Standard Auditing Practices
(SAP) pertaining to the "Study and Evaluation of the Accounting System and Related Internal
Controls in connection with an Audit", defines the inter-relationship between the Statutory
Auditor and internal control.
Systems Control Evaluation (SCE): It is based on the questions and answers exercise illustrated
above, is thus designed to identify the controls in the system which would satisfy the general
audit objectives (prevent or detect the various types of material errors).

4.11 Review Questions

1. Define internal control and internal check. Explain the internal control process with respect
to audit.
2. What are the factors reflected in the control environment?
3. Distinguish between control environment and control procedures.

4. Establish inter-relationship between audit and internal controls.
5. What are the advantages of internal auditing?
6. Narrate the characteristics of effective internal control system.

7. Describe the elements of internal control.
8. Explain the basic principles governing internal control.
9. Describe the inherent limitations of internal control.
10. Identify the scope and objectives of the Statutory Auditor and its role in internal control.
11. What are the two dimensions of internal control?

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