Page 72 - CA Inter Audit PARAM

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QNO Narrative record Old Course -- (N17E)
ICS.23 Bhaskar CNO- SA315-P2.240
Narrative record
Answer ➢ The Narrative Record:
This is a complete and exhaustive description of the system as found in operation by the
auditor.
Actual testing and observation are necessary before such a record can be developed.
It may be recommended in cases where no formal control system is in operation and would
be more suited to small business.
➢ The basic disadvantages of narrative records are:
To comprehend the system in operation is quite difficult.
To identify weaknesses or gaps in the system.
To incorporate changes arising on account of reshuffling of manpower, etc

QNO Narrative record Vs Check Old Course -- (N16E)
ICS.25 Bhaskar CNO- SA315-P2.240/ SA315-P2.280
What is the difference between Narrative records and Checklist?
Answer ➢ Difference between Narrative records and Checklist:
The Narrative Record is a complete and exhaustive description of the system as found in
operation by the auditor whereas checklist is a series of instructions and/or questions which
a member of the auditing staff must follow and/or answer. When he completes instruction,
he initials the space against the instruction. Answers to the check list instructions are usually
Yes, No or Not Applicable
The Narrative Record may be recommended in cases where no formal control system is in
operation and would be more suited to small business whereas check list is an on-the-job
requirement and instructions are framed having regard to the desirable elements of control.

QNO ICS in Small Business Old Course -- (P16M/N20R)
ICS.27 Bhaskar CNO- SA315.P2.230
Zomba Products Private limited is a small company. The control systems in the company are rudimentary.
How, you as an auditor of the company, would proceed to evaluate internal control of the company?

OR
Write a short note on the internal control in small business.
Answer ➢ Internal Control in Small Business:
The auditor needs to obtain the same degree of assurance in order to give an unqualified
opinion on the financial statements of both small and large entities. However, many controls
which would be relevant to large entities are not practical in the small business e.g., in small
business accounting work may be performed by only a few persons. These persons may have
both operating and custodial responsibilities, and segregation of functions may be missing or
severally limited.
Inadequate segregation of duties may, in some cases, be offset by owner/manager
supervisory controls which may exist because of direct personal knowledge of the business
and involvement in the business transactions. In circumstances where segregation of duties
is limited or evidence of supervisory controls is lacking, the evidence necessary to support
the auditors’ opinion on the financial information may have to be obtained largely through
the performance of substantive procedure.

QNO-- Suitability of Manual Controls New Course – (M24E)
ICS.27.500 Bhaskar CNO – Unique

You are appointed as the auditor of a company manufacturing paints. The company has a robust system of
internal control. Most of the controls in the company are automated and they are working effectively.

However, in certain situations, manual elements in internal controls are more suitable. What are the
circumstances where manual elements in internal controls may be more suitable?

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