Page 78 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
SA 315 Definition of Internal Control: Process designed, implemented, and maintained by TCWG,
management & employees. To Achieve following Objectives:
• Compliance with laws and regulations.
• Safeguarding of assets.
• Effectiveness and efficiency of operations.
• Reliability of financial reporting.
More Objectives as per traditional theory
• Prevention and detection of fraud and error.
• Adherence to management policies.
Auditor's Role:
• Understand the control environment.
• Make preliminary assessment of accounting and control systems.
• Development of an audit plan doesn’t always need understanding of all control procedures.
• Obtain evidence through tests of controls.
What to check in Test of Controls:
1. By whom controls were applied.
2. How controls were applied.
3. Consistency of application.
4. Ensure tests of control cover periods of change or fluctuation.
5. Recognize that some deviations can occur due to factors like personnel changes, transaction fluctuations,
and human errors.
Evaluate results of TOC:
• Evaluate if internal controls operate as initially assessed.
• Modify planned procedures based on deviations found.
Period Consideration:
• Determine if controls were consistent throughout the period.
• Consider different controls used during different times.
• Address breakdowns in controls during specific periods. Adjust audit procedures accordingly.

(CNO-MRI.280) Nature of Internal Control
Polices & Procedures: Internal control is a set of internally generated policies and procedures.
Management Responsibility:
• Management's primary responsibility is to establish and maintain a system of internal control.
• System should be appropriate to the business entity's size and nature.
Objectives: As discussed in definition
Risk Consideration:
• Based on the consideration of significant risks in achieving objectives.

(CNO-MRI.300) Scope of Internal Controls
Scope: In context of auditing financial statements. Internal controls cover both Administrative Controls &
AccountingControls.
Administrative Controls: Administrative controls refer to the policies, procedures, and guidelines that
organizations establish to manage and direct the behaviour and actions of their employees. Eg Recruitment,
Training, Segregation of Duties, Approvals, Supervision, Review, Job Rotation Etc
Accounting Controls: Controls: implemented to ensure reliability of financial information and preparation of
financial statements. Eg Pre numbered purchase, sale and other documents, Checking & approving transactions,
timely, complete and accurate journal entries & posting, reconciliation of books with assets etc

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