Page 81 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes

Notes The questionnaire is intended to be filled by the company executives who are in
charge of the various areas.
In formulating schemes of internal control or drafting an internal control questionnaire the
following important points should be kept in mind:
1. Understanding various stages of a transaction: Understanding of various stages of a
transaction is very important to formulate a scheme of internal control or drafting an
internal control questionnaire. Each job or transactions passes through various tasks.
Detail knowledge of these tasks and their links with other tasks are very crucial for
formulating a scheme of internal control or drafting an internal control questionnaire.
2. Distribution of duties: This is vital for formulating a scheme of internal control or drafting
an internal control questionnaire. The duties should be divided 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.
3. Rotation of duties: There are various advantages of rotating employees on different job
periodically. Firstly, it ensures that no employee can have a vested interest in his job. If the
clerk processing purchase orders is changed every six months, the suppliers will find it
difficult to develop permanent contacts. Secondly, each employee will keep his work up
to date because he knows that somebody else will check his work. Thirdly, work does not
suffer due to absence of any employee because another person with required experience is
always available.

4. Review: An internal control scheme should provide for a periodic review of the system to
ensure that the prescribed scheme is being followed as far as practicable. Many
organizations entrust internal audit departments the responsibility for periodic review of
the system including the controls.

Task Draft a suitable internal control system by which control may be exercised over the
purchase of raw materials.

Self Assessment

Fill in the blanks:
11. Drafting a scheme of internal control is similar to drafting an internal control ……………….
12. There are various advantages of …………….. employees on different job periodically.

5.7 Evaluation of Internal Controls with Special Reference to
the Audit of Public Sector Enterprises in India

Internal Control comprises the plan and all the co-ordinate methods and measures adopted
within an organization with the express objectives of:
1. Safeguarding the assets of the organization,
2. Verifying the accuracy and reliability of its accounting data,

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