Which are the control procedures in auditing?

These are the policies and procedures in addition to the control environment, which the management has established to achieve the entity’s specific objectives. The mix of types of controls implemented by management will depend on the control objectives and the size of the entity.

a) Organizational plan chart
Companies should have proper organization plans. An organized plan shows clearly the various
departments within the company, their functions and persons charged with ensuring that such
functions are fulfilled. They seek to ensure that the entity is properly departmentalized preventing
duplication of duties across departments and boosting accountability within the entity. Delegation
and limits of authority should be well and clearly defined.

b) Segregation of duties.
This refers to separation of various duties and responsibilities such that one person cannot
process and record a complete transaction from beginning to the end without being checked by
another person. E.g. in purchase of fixed assets, an individual should not authorize the purchase,
place the order, receive the assets, record the transaction and keep custody of the assets. To
minimize risk of error and or intention the following should be performed by different individuals
and departments as much as practicable.
•• Initiation of transaction. This is where if an item is found to be out of stock and a requisition is made.
•• Authorization Different levels of management should be given limits as to what they can authorize or to what extent they can commit company resources.
•• Execution. Person’s independent from those who authorize the transactions should execute them.
•• Recording. Segregation of duties also includes an internal check which refers to the activities of one person being complementary to those of another person.

c) Physical controls
These are security measures concerned with the custody of company’s assets by limiting access
to authorized people only. Direct physical controls include keeping assets under lock and key,
employment of security guards, building fences and use of closed circuit cameras. Indirect
physical controls include use of a fixed asset movement registers and use of computers to record
utilization of company vehicles.

d) Authorization and approval.
Transactions that commit the organizations resources should be subject to authorization and
approval by a responsible official. The limits for authorization should also be specified.

e) Arithmetic and accounting control.
These are controls within the accounting function which check that transactions are authorized
and accurately recorded. These are aimed at ensuring completeness and accuracy of the
accounting records. The key features are;
•• Use of pre numbered documents in processing transactions.
•• Issuing of documents in sequence when processing transactions.
•• Monitoring movement of documents by use of a register in which all the people in possession of specific documents have signed that they are possession of those documents.
•• Production of exception reports e.g. where a local purchase order (LPO) has been raised and the order has not been fulfilled by the supplier.
•• Reconciliation of different accounts and the related control accounts e.g. bank reconciliation. Reconciliations would only be effective if prepared by independent persons and non reconciling items resolved in a timely manner.

f) Personnel.
The proper functioning of any system is dependent on the competence and integrity of those operating it. The company must therefore recruit competent staff with integrity and intelligence. Staff should be assigned responsibilities that match their capability and undergo training where necessary.

g) Supervision.
Transactions and their recording should be subjected to supervision by competent and responsible officials. Supervision is necessary because it gives the chance of correcting errors and also
because lower level employees generally tend to be indiscipline if not closely supervised.

h) Management controls.
These are controls exercised by management in addition to daily routines of the system. They include comparison of actual performance with budgets review of management accounts e.g. budgets and internal audit function.

i) Rotation of duties.
Duties should be rotated between personnel at the same organizational level e.g. payroll staff and credit control staff. Staff should be encouraged to take annual leave to provide an opportunity for their work to be checked by an independent person.

j) Routine and automatic checks.
These are conducted on routine duties and operations to ensure that they are operating efficiently.
Such checks are conducted on surprise basis to minimize errors and frauds. Examples may include surprise cash counts and physical inspection of fixed assets.

k) Internal audit
This is a control function set up by management to review the accounting and internal control system. Internal audit carries out continuous evaluation of operating effectiveness of the internal control policies and procedures. The findings and recommendations are then reported to management.

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Wilfykil answered the question on April 11, 2019 at 12:04