Page 85 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes A strong control environment (e.g. one with tight budgetary controls and an effective audit
function) can significantly complement specific controls. However, this by itself does not ensure
the overall effectiveness of the system of internal control. Hence arises the necessity for ‘control
procedures’.
Control procedures encompass policies and procedures established by the Management, in
order to provide for the attainment of certain objectives. These could include the existence of
systems for:

1. An effective system of reconciliation of Books of Accounts.
2. Check of the arithmetical accuracy of the records.

5.8 EDP Environment –The New Dimension

The challenges faced by the Auditor are considerable in an environment where the use of the
computer in data processing operations is on the increase. Thus it is possible that while in a
manual system, incompatible functions such as the authority to initiate and execute a transaction
and the recording of the transaction, are assigned to different departments or to different
individuals within the accounting department, in a computerized environment, these
incompatible functions may be consolidated within the EDP department. Therefore the need
arises for alternative controls including:

1. Organization controls with appropriate segregation of duties within the EDP Department.
2. Sound personnel practices with effective control over the quality of work.
3. Standard operating procedures for ensuring high quality processing and limiting the
possibility of errors as also the unauthorized use of files, programs and reports.
4. Systems development and documentation controls.

5.8.1 Methodology for Evaluation

Evaluation of internal control systems can be done in a variety of ways. It would be reasonable
to expect that the desired degree of documentation would be in proportion with the size and
activities of the organization. The following are the general methods adopted:
1. Appraisal by workflow
2. Appraisal by duties

3. Appraisal by questionnaire
The adoption of any of the above methods does not preclude the use of one or more methods in
connection.

5.8.2 Internal Control Questionnaire

Evaluation of Internal Controls by the questionnaire methods (used in conjunction with other
methods.) is a convenient and efficient medium for documented evidence of such review having
actually taken place.

A standard Internal Control Questionnaire has therefore, been presented by the Research
Committee of Chartered Accountants of India. The questions are so framed that most of the
answers can be given by “Yes” or “No” or “Not applicable”. Affirmative answers generally
indicate good internal controls while negative answers indicate weaknesses. In such cases,

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