Write short notes on Test of Internal Control

Auditing and Assurance Revision Questions and Answers

After assimilating the internal control system, the auditor needs to examine whether and how far the same is actually in operation. For this, he resorts to actual testing of the system in operation. This he does on a selective basis: he can plan this testing in such a manner that all the important areas are covered in period of, say, three years. Selective testing is being done application of procedural tests and auditing in depth.

Tests of control are performed to obtain audit evidence about the effectiveness of the:
 Design of the accounting and internal control systems, that is, whether they are suitably designed to prevent or detect and correct material misstatements; and
 Operation of the internal controls throughout the period.
Tests of control include tests of elements of the control environment where strengths in the control environment are used auditor to reduce control risk.

Tests of control may include:

 Inspection of documents supporting transactions and other events to gain audit evidence that internal controls have operated properly, for example, verifying that a transaction has been authorized.
 Inquiries about, and observation of, internal controls which leave no audit trail, for example, determining who actually performs each function and not merely who is supposed to perform it.
 Re-performance of internal controls, for example, reconciliation of bank accounts, to ensure they were correctly performed the entity.
 Testing of internal control operating on specific computerized applications or over the overall information technology function, for example, access or program change controls.

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