Page 79 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
Difference: while administrative and accounting controls can sometimes overlap, they serve different primary
functions within an organization. Administrative controls address broader organizational operations and
employee behaviour, while accounting controls zero in on the integrity of financial processes and reporting.
*Please note module’s theory on this topic was not appropriate, it was direction less without proper points. We
understood what concept they wanted to convey and accordingly drafted above theory. Sometimes this approach
is required for understanding, retention and exam performance.

(CNO-MRI.320) Objectives of Accounting Internal Control System
Ensure all transactions are.
• Authorised
• Real
• Recorded
• Properly Valued
• Recorded Timely
• Properly Posted
• Properly Summarized, Classified and Disclosed
Limitations of Internal Control -
Top Management Related
Management overriding an internal control: The possibility that a person responsible for exercising an
internal control could abuse that responsibility, for example, a member of management overriding an internal
control.
Estimates & Judgements in Financial Statements Preparation: Manipulations by management with respect
to transactions or estimates and judgments required in the preparation of financial statements can distort the
financial reporting process.

Mid-Level Management Related
Cost-Benefit Analysis: Management's consideration that the cost of an internal control does not exceed the
expected benefits to be derived.
Collusion: The possibility of circumvention of internal controls through collusion with employees or with
parties outside the entity can compromise the control environment.

Employees Related
Unusual Transactions: Most internal controls tend not to be directed at transactions of unusual nature, which
may leave some risks unaddressed.
Human Error: The potential for human error, such as carelessness, distraction, mistakes of judgement, and
misunderstanding of instructions, can undermine the effectiveness of internal controls.

(CNO-MRI.340) Structure of Internal Control (Steps included in Internal Control)
1. Segregation of Duties:
Allocation: Different transaction processes are given to different persons.
Purpose: Prevent and detect fraud and errors in a timely manner.
Functions:
a) Transaction authorization.
b) Transaction execution.
c) Record and document maintenance.
d) Asset custody.
Efficiency: Consider cost and efficacy when allocating duties.
Rotation: Periodically rotate duties for error detection, prevent vested interests, and ensure up-to-date work.

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