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    26 views12 pages

    4.internal Control PDF

    Uploaded by

    Shwetha Balaji

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 12
    (No.1 for CAICWA & MECICEC MASTER MINDS } 4. INTERNAL CONTROL :xamination in Depth or Walk through test. (A) (PM, N 124M, M14 RTP, M17 RTP) 'Q.No.1, Write a short note on 1. It implies examination of a few selected transactions from the beainning to the end through the entire flow of the transaction, i.e., from initiation to the completion of the transaction by receipt of payment of cash and delivery or receipt of the goods. 2, This examination consists of studying the recording of transactions at the various stages through which they have passed 3. At each stage, relevant records and authorities are examined to ensure that the transactions are executed with proper authorizations by the competent authorities at each stage. For example in case purchases are taken for auditing in depth, the auditor will examine’ a) Purchase Requisition, b) Invitation of quotations and analysis of the same, ¢) Official Purchase order, d) Receipt of goods, together with delivery challans e) Admission of goods to stores after verification of guality, quantity etc., f) Entry in store records, a) Receipt of suppliers invoice S h) Entries in Purchase day book. i) Postings to purchase ledger and puf@s i) Payment of Cheque in settlems Woice & Entry for payment in Cash/Bank book, k) Posting from Cash book to "Account, 2. Explain the concept! purpose of internal control. Also state the objectives of internal control. (A) (M16 RTP) PURPOSE) DEFINITION OF INTERNAL CONTROL: Internal control is the process designed, implemented and maintained by those charged with governance and management to provide reasonable assurance about the achievement of the following objectives by the entity: 1. Reliability of the entity's financial reporting: 2. Efficiency and effectiveness of its operations; 3. Its compliance with applicable laws and regulations; and 4, Safeguarding of assets The way in which internal control is designed, implemented and maintained varies with an entity's size and complexity OBJECTIVES OF INTERNAL CONTROL: The following are the aims of internal control so as far as Financial and Accounting aspects are concerned 1. Providing the flow of transaction through various stages in such a way that ‘* No single person can handle a transaction from beginning to end of that transaction * Fixing up responsibilty for the work assigned to various employees, * Securing proper documentation at each stage IPCC_37e_Auditing & Assurance _Internal control a. Ph: 98851 25025/26 www.mastermindsindia.com 2. To ensure that all transactions are a) Properly Executed in accordance with proper authorizations and b) Properly recorded + inthe correct amount, in the appropriate accounts and ‘+ in the correct accounting period by following proper cut off procedures to separate the transactions of two consecutive years ‘* in accordance with the applicable financial reporting framework 3. To ensure that all assets are a) safequarded from unauthorized access, use or disposition and b) Physically verified at reasonable intervals of time and appropriate action is taken with regard to any differences, 4. Minimizing the losses and wastages by preventing the employees from committing frauds and errors. 5. Segregation of accounting and custodial functions, SIMILAR QUESTIONS: 1. What are the aims of internal control so far as Financial and Accounting aspects are concerned? A. Refer the above “objectives of internal control” J b) Auditor can formulate audit prograg@QesBnly after examination of internal control system by performing of compliance procedures ¢) Based on the results of his compliance procedures, the auditor can determine whether the existing controls are adequate and can be relied on and thereby to decide about extent of substantive tests to be performed ‘+ If the internal controls are considered weak in some areas, he might extend certain tests to cover a large number of transactions or he may perform additional tests to bring him the necessary satisfaction ‘* If the internal controls are considered strong in some areas, he might perform certain tests to cover_few numbers of transactions in order to devote more attention towards the areas where the intemal controls are weak. SIMILAR QUESTIONS: 1. Why the auditor should needs to consider/verify internal control system? 2. Is it necessary for the auditor to compulsorily examine the internal controls? 3. An auditor decides to perform substantive procedures directly without performing compliance procedures. Comment ‘A: Answer is same as above for all these questions. IPCC_37e_Auditing & Assurance _Internal control 4.2 No.1 for CAICWA & MECICEC MASTER MINDS Q.No.4. what are th ns of Internal Control system? (A) (PM, M 45 RTP, M16 RTP, M 17 RTP, N 13-8M, M15-6M) INHERENT LIMITATIONS OF INTERNAL CONTROL SYSTEM Internal control can provide only reasonable but not absolute assurance that its objective relating to prevention and detection of errors/frauds, safeguarding of assets etc., are achieved This is because it suffers from some inherent limitations, as follows: 1. Cost of implementation of controls may be more than its benefits. So the management usually doesn't implement best controls. 2. Controls are generally made for usual or known transactions. Therefore any unusual transaction may not be controlled. 3. Human error may occur while carrying out I.C. System due to carelessness, misjudgment and misunderstanding of instructions, The possibility that controls may be violated through collusion with employees or outsiders. The possibility that a person responsible for exercising control may abuse that authority. Manipulation by management with respect to some transactions may not be detected by control system E.g. manipulating estimates and judgments requjred in the preparation of financial statements.

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