Page 87 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
In the use of standardized internal control questionnaire, certain basic assumptions about elements of
good control are taken into account. These are -
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Common Procedures: The assumption that certain procedures, commonly used by most businesses, are essential
for reliable internal control. Examples include depositing all daily receipts into the bank, daily balancing of cash
books and ledgers, and periodic reconciliation with control accounts.
Routine Review: The assumption that the work performed by each individual is subject to review by another
person as part of routine procedures.
Work Identification: The assumption that there should always be evidence to identify the person who
performed the work, whether it involves authorization, implementation, or checking.
Division of Duties: The assumption that organizations allow for an extensive division of duties and
responsibilities. The larger the organization, the greater the potential for division of duties.
Documentation: The assumption that proper documentation and recording of transactions are in place.
Non-Compatible Roles: The assumption that employees responsible for accounting functions are not assigned
any custodial duties.
No Single Responsibility: The assumption that no single person is solely responsible for completing a
transaction. Multiple individuals should be involved in the authorization, implementation, and checking
processes.

(CNO-MRI.560) Check List
Definition: A series of instructions or questions on internal control for the audit team members.
Use: Acts as a reminder for the auditor about aspects of internal control testing.
Execution: Auditors initial next to completed tasks; responses include 'Yes', 'No', or 'Not Applicable'.
Questions in the check list may be formed in the following manner (this is an illustrative set of questions
to be answered by the audit staff).
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Non-Compatible Functions
Signatures: Cashier doesn't sign cheques.
Mail: Cashier shouldn't open incoming mails.
Authorisation: Cashier neither authorises expenditure nor receipt.
Ledgers: Cashier doesn't post any ledger entries.

Leaves: Takes annual leave regularly.
Daily: Inks and balances daily.
Reconciliation: Prepares monthly bank reconciliation statement.

Security: Has provided proper security or executed a fidelity bond.
Payments: Ensures compliance and due authorisation before payment.
Verification: Checks physical cash against book figure daily

Funds: Doesn't hold other funds or investments.
Unnecessary Balance: Doesn't keep unnecessary balance in hand.
The basic distinction between internal control questionnaire and check list are as under:
1. Respondents: Company executives typically answer the ICQ questions, whereas auditors or auditor staff are
responsible for answering the checklist questions.

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