Auditors review the internal control process by performing walkthroughs to assess the overall risk of material misstatement to the financial statements. Risk and Control Matrices Risk and control matrices link controls with control objectives and related risks.
Internal Control Questionnaires Completed ICQs list answers to questions related to the identification and evaluation of internal controls. While auditing sales transactions, for example, an auditor may ask who collects cash, when cash is collected and how cash is collected.
Depending on the nature of the organization, control documentation may range from generic guidelines to detailed written policies and procedures. While auditing a retail business, an auditor may identify cash receipts as a significant transaction class because the company receives cash numerous times throughout the year.
For this reason, documentation must be well-organized and consistent. Process maps can help auditors better understand business processes; save time on communicating and confirming business processes with management; identify risks, controls, deficiencies, and inefficiencies; and develop recommendations for improvements.
The main output of a flowchart is a process map — a graphical representation of events performed by a group of people. Internal auditors must be able to determine which controls are necessary to the process, activity, or system under review in light of the risk profile and desired level of control.
Her work has appeared in eHow and the "Montgomery Advertiser," as well as being utilized by regional accounting firms in Florida and Alabama.
Comment on this article. James is a certified public accountant. Regardless of the specific methods used, auditors should pay close attention to the control documentation process, as they will rely on these documents when evaluating controls at a later stage.
This is done by drafting checklists, flowcharts or narratives, or performing internal control questionnaires. Internal auditors should consider these responsibilities when documenting either formal written or informal undocumented controls. Photo Credits business woman image by Vasiliy Koval from Fotolia.
In addition, document whether the evaluation of the internal control system increased or decreased the risk that a material misstatement could occur in the financial statements.
Independently, however, narrative descriptions do not serve as an effective tool for process description — they can be lengthy and difficult to review, and typically are not considered user-friendly.
Internal auditors can use a risk and control matrix that incorporates COSO concepts to document the objectives and the relevant risks identified. The magazine is pleased to provide you an opportunity to share your thoughts about these blog posts.
For example, an auditor may observe a customer paying cash to an authorized cashier at the time of purchase.Narrative A narrative is a written description of a client's internal controls.
A proper narrative of an accounting system and related controls describes four things;. Internal control documentation can take various forms, including flowcharts, policy and procedure manuals, and narrative descriptions.
No one particular form of documentation is required by The IIA's Standards, and the extent of documentation may vary depending on the complexity of the area.
The New Internal Audit Department “We’re here to help!” ethical practices and procedures. Let’s start with some Basics – What are some terms we will use in discussing Internal Controls?
Process: a group of logically related activities that transform inputs into 1.
Pick a method that suits the process: Flowchart or Narrative 4. As part of a financial statement audit, auditors are required to obtain an understanding of a company's internal control system.
Clifton Gunderson CPAs and Consultants defines internal control as. NOTE: This document contains detailed instructions for preparing a business process narrative. The document identifies the key information required to be included in the narrative, including identification of key process owners, key risks, financial reporting objectives, key control.
Evaluation of Internal Control from a Control Objective Narrative Mary B. Curtis It is the Director of Internal Audit’s policy Curtis and Borthick—Evaluation of Internal Control from a Control Objective Narrative 65 training.
When program changes occur that may affect current procedures or .Download