Page 68 - CA Inter Audit PARAM

CA Ravi Taori
indicate problems or highlight areas in need of improvement.
In case of Small Entities:
Management’s monitoring of control is often accomplished by management’s or the owner-
manager’s close involvement in operations. This involvement often will identify significant
variances from expectations and inaccuracies in financial data leading to remedial action to
the control.

QNO-- Identifying ICS Component - Control Activity & Monitoring New Course – (S24E)
ICS.07.50 Bhaskar CNO – SA315-P2.140/160

"CA Amit is the auditor of LMN Ltd. While conducting the audit, he wanted to analyze the different
components of internal control of the company. Identify and explain which component of internal control
he is trying to understand in the following two cases: -
(i) Whether controls in LMN Ltd. are operating as intended and they are modified as appropriate
for change in conditions.
(ii) Whether there exists proper segregation of duties in the company and the person responsible
for recording a transaction is different from the person authorizing it."
Answer (i) In this case, CA. Amit is trying to understand that whether controls in the LMN Ltd. are operating as
intended and they are modified as appropriate for change in conditions: He is gaining the
understanding of the Monitoring of controls component of internal control. Monitoring of controls is
a process to assess the effectiveness of internal control performance over time. It helps in assessing
the effectiveness of controls on a timely basis and taking necessary remedial actions. It includes
considering whether controls are operating as intended and that they are modified as appropriate for
change in conditions.

(ii) In the given situation, CA Amit is trying to understand that whether there exists a proper system of
segregation of duties in the company and the person responsible for recording a transaction is
different from the person authorising it. He is gaining an understanding of internal control of the
company. In particular, he is understanding “control activities”. When a person recording a
transaction is different from one authorizing it, he gains confidence that there exists a system for
preventing misstatements. It helps him in gaining insight into the internal control system of the
company.

QNO Internal Control Component - Understanding Old Course -- (M21R/M22M/N23M)
ICS.08 Information System Bhaskar CNO- SA315-P2.195
The auditor shall obtain an understanding of the information system, including the related business processes,
relevant to financial reporting, including the classes of transactions in the entity’s operations that are

significant to the financial statements, controls surrounding journal entries etc. Explain the other
considerations in this regard.
Answer The auditor shall obtain an understanding of the information system, including the related business
processes, relevant to financial reporting, including the following are as:

(a) The classes of transactions in the entity’s operations that are significant to the financial
statements.

(b) The procedures by which those transactions are initiated, recorded, processed, corrected as
necessary, transferred to the general ledger and reported in the financial statements.

(c) The related accounting records, supporting information and specific accounts in the financial
statements that are used to initiate, record, process and report transactions.

(d) How the information system captures events and conditions that are significant to the financial
statements.

(e) The financial reporting process used to prepare the entity’s financial statements.

(f) Controls surrounding journal entries.

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