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Unit 5: Evaluation of Internal Control System

Questionnaires can be prepared for various aspects of the internal control system. An illustrative Notes
questionnaire regarding fixed assets is given below:

(a) Who authorizes capital expenditure and how is such authorization recorded and
authenticated?

(b) Who authorizes the sale, or transfer of fixed assets (including scrap/ defective/obsolete
etc.) and how is such authorization recorded and authenticated?
(c) Who maintains accounting records in respect of fixed assets and how is it ensured that
capital and revenue expenditure are separately recorded?
(d) Who maintains fixed assets registers and how frequently they are agreed with relevant
accounts and physically verified?
(e) What arrangements are being made to ensure that fixed assets are properly maintained
and used for the service of the company (i.e. by periodic physical checks as to their location,
operation and condition)?

(f) Where fixed assets are transferred between branches or companies of the same group,
what arrangements in respect of pricing, depreciation and accounting are made?
(g) How are depreciation rates authorized and evidenced and which persons are to be
responsible for carrying out and checking necessary calculations?

Task List six important questions that can be included in the internal control questionnaire
regarding purchase of machinery.
Self Assessment

Fill in the blanks:
9. A questionnaire usually consists of several separate ……………. devoted to areas such as
purchases, sales, debtors, creditors, wages etc.

10. The questionnaire is intended to be filled by the company ………………. who are in
charge of various areas.

5.6 Formulating Internal Control Schemes

A professional accountant often asks to formulate schemes of internal control in various functional
areas of an organization. Drafting a scheme of internal control is similar to drafting an internal
control questionnaire. Knowledge of detail business process is vital in both cases. However,
when a scheme of internal control is drafted the various statements are given in the form of
instructions whereas in an internal control questionnaire, the auditor asks specific questions
from the client.

Example: A scheme of internal control over fixed asset may state the following:
“A written approval from the General Manager of the plant must be taken before selling or
transfer of any fixed assets.” A specific question in the internal control questionnaire in this
regard may be: “Has a written approval from the General Manager of the plant taken before
selling or transfer of any fixed assets.”

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