The auditor should document the results of risk assessment either in the form of internal control questionnaire, flow charts or narrative descriptions.
Techniques For Documentation Of Information Relating to Internal control structure
For practical purposes there are three major techniques of documenting The accounting and internal control system.
Internal Control Questionnaire ( I C Q )
The procedures and controls are receded in the form of system notes.
Such notes are particularly useful if they are prepared in sufficient details adequately cross-referenced and identify the controls.
Internal Control Questionnaire
Preparation of internal control questionnaire involves
(a) Identification of control objectives
(b) Phrasing control procedures to attain the objectives
Flow charts are diagrammatic presentation or’ accounting and internal control systems using standardized symbols. Separate flow charts are prepared for each transaction cycle for example purchases, cash receipts, payroll and sales.
Flow chart highlights:
– Flow of documents
– Distribution of documents
– Flow of information
– Built in checks
– Segregation of duties
AUDIT RISKIN SMALL BUSINESS
It has been mentioned earlier that the following duties should be handled by different persons:
Authorization of the transaction
Recording the transaction
Custody of the asset related to the transaction.
In a small business it may not be practicable to provide for segregation of above functions because of insufficient number of personnel. However, the restricted size of the business generally makes it possible for the management to have personnel contact with every employee. In any way, since the control risk is high due to inadequate segregation, heavy reliance has to be placed on substantive procedures.
INTERNAL CONTROL QUESTIONAIRE
In the following pages, examples of following internal control questionnaire are given: