Page 74 - DCOM509_ADVANCED_AUDITING

Unit 5: Evaluation of Internal Control System

2. The objective of evaluating internal control system is to reduce the auditor’s work and Notes
save his time and also ……………….. of the organization.

5.2 Steps in Evaluation

The different steps undertaken by the auditor for evaluating the system of internal control has
been illustrated through Figure: 5.1 (adapted from ‘Contemporary Audit’ by Kamal Gupta)
below:

Figure 5.1: Study and Evaluation of Internal Controls an Illustration

Now, let us discuss the steps of evaluating internal control system which are as follows:

(i) Understanding the system: At first the auditor should understand the internal control
system with the purpose to have an idea of the flow of transactions and the various
controls procedures. This will help him to pinpoint those internal controls on which he
might base in doing his audit. To understand the internal control system, it may be useful
to choose a few transactions through the system. The auditor should also ascertain whether
the internal controls were effective and efficient throughout the period under audit.

LOVELY PROFESSIONAL UNIVERSITY 69