Advanced Auditing --> Internal Controls

What is Internal Controls?

The system of internal control has been defined by AAS-6 as plan of organization and all the methods and procedures adopted by the management of the an entity to assist in achieving the management’s objective of ensuring as far as practicable orderly and efficient conduct if its business, including :

1. Adherence to management policies;
2. Safeguarding of assets;
3. Prevention and detection n of fraud and error;
4. Accuracy and completeness of accounting records; and
5. Timely preparation of reliable financial information.

It is the auditor’s duty to know that internal controls as installed by the management are fully in operation. On obtaining assurance about the dependability of the system, he can frame his audit programme.

Thus the auditor should know
1. Whether there exists any internal control system;
2. Whether the internal control system is formalized;
3. What the controls are and how they work;
4. Whether the controls have been understood by the operative personnel in the same way as the management intended; and
5. Whether the controls are in–fact operating.

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