Page 70 - CA Inter Audit PARAM

CA Ravi Taori
• Materiality.
• The significance of the related risk.
• The size of the entity.
• The nature of the entity’s business, including its organisation and ownership characteristics.
• The diversity and complexity of the entity’s operations.
• Applicable legal and regulatory requirements.
• The circumstances and the applicable component of internal control.
• The nature and complexity of the systems that are part of the entity’s internal control, including
the use of service organisations.
• Whether, and how, a specific control, individually or in combination with others, prevents, or
detects and corrects, material misstatement

In the given case, CA Karan suggests that all controls should be assessed to mitigate the risk of material
misstatement in the financial statements, while CA Rajat is of the view that only those controls deemed
relevant to the audit should be assessed based on professional judgment.

Based on the factors mentioned above, it can be concluded that the auditors should assess only those
controls deemed relevant to mitigate the risk of material misstatement in FDP Ltd.'s financial
statements.

QNO Tools of Review -- Flow Chart Old Course -- (P16M/M16E)
ICS.15 Bhaskar CNO- SA315-P2.260
Write short note on the use of flowcharts in evaluation of internal control.
Answer ➢ Use of flow chart in evaluation of internal control
It is a graphic presentation of each part of the company’s system of internal control. A flow chart
is considered to be the most concise way of recording the auditor’s review of the system.
It minimises the amount of narrative explanation and thereby achieves a consideration or
presentation not possible in any other form.

It is also necessary for the auditor to study the significant features of the business carried on by
the concern; the nature of its activities and various channels of goods and materials as well as
cash, both inward and outward; and also a comprehensive study of the entire process of
manufacturing, trading and administration. This will help him understand and evaluate the
internal controls in the correct perspective.

QNO Tools of Review -- Internal Control Old Course -- (P16M/M16M)
ICS.17 Questionnaire Bhaskar CNO- SA315-P2.300
Explain briefly the technique of Internal Control Questionnaire to facilitate the accumulation of information

necessary for proper evaluation of internal control.
Answer ➢ Internal Control Questionnaire:
Internal control questionnaire is a comprehensive series of questions concerning internal
control. It is the most widely used form for collecting information about the existence, operation
and efficiency of internal control in the organisation.
The questionnaire is usually issued to the client and the client is requested to get it filled by the
concerned executives and employees.
In the questionnaire, generally questions are so framed that a ‘Yes’ answer denotes satisfactory
position and a ‘No’ answer suggests weakness. Provision is made for an explanation or further
details of ‘No’ answers. In respect of questions not relevant to the business, ‘Not Applicable’
reply is given.
This is a comprehensive series of questions concerning internal control.
This is the most widely used form for collecting information about the existence, operation and
efficiency of internal control in an organisation.
With a proper questionnaire, all internal control evaluation can be completed at one time or in
sections.
It is the general practice to review the internal control system annually and record the review
in detail.

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