Briefly explain the methods which an auditor might use to ascertain a client‘s internal control system

Auditing and Assurance Revision Questions and Answers

Internal Control Questionnaire (ICQ)
This is a set of questions the auditor poses to his clients and require short answers
e.g. ‗YES‘ or ‗NO‘. A ‗YES‘ answer indicates a strong internal control system and a ‗NO‘ answer indicates a weakness.

Flow Charts
These are diagrammatic representations of accounting function and procedures. The flowcharts reflect the movement of goods and documents from one department to another or movement of documents within one department.

System Notes
The purpose of the system notes is to describe and explain the system, while making any comments or criticism which will help demonstrate an intelligent understanding of the system.

Third Party Confirmation
These are confirmations from third parties e.g. debtors, creditors, bankers e.t.c. Any differences between these parties‘ replies and the company‘s own records may be a sign of weakness in internal controls.

Compliance Tests
These are tests carried out in the existing internal controls to see whether they comply with the design. Non-compliance indicates a weak internal control.

Substantive Tests
These are tests on the transactions to see whether they are correct. The tests can also be carried on the balances to see whether they are genuine e.g. for bank balances, request a bank to confirm the balance. Any difference with the company‘s cash book will indicate a weakness in internal controls.



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