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(a) Describe five purposes of an internal control system. (b) Explain five actions that an auditor should take if the internal control system is found to...

      

(a) Describe five purposes of an internal control system.
(b) Explain five actions that an auditor should take if the internal control system is found to be
weak.

  

Answers


Kavungya
(a) Purpose of an internal control system.
• Enable management to carry out the business in an orderly and efficient manner. Internal
contracts layout the various procedures to be followed in conducting the affairs of the
organisation.
• Ensures adherence to management policies. Management policies vary from broad
objective to detailed policy matters. Internal controls serve as a check to ensure that
management policies are adhered to.
• Safeguard the company's assets - Certain controls are designed to ensure the assets of the
company arc protected from theft and destruction.
• Help in ensuring completeness and accuracy of the accounting records maintained as per
the Companies Act which requires that, a company keeps proper books of accounts.
• Helps in, preventing and detecting errors and frauds. This is management's objectives and
it is achieved through the implementation and continuous operation of an adequate
system of internal controls.

(b) Actions to be taken by the auditor if the IC's is weak
• The auditor should bring such weaknesses to the attention of the management
immediately and request correction measures.
• The auditor should change his audit approach in the area where the ICs is weak 'from
system based audit to vouching audit together with auditing in depth where the
weaknesses are pronounced.
• The auditor should increase substantive tests to avoid any frauds.
• The auditor should gather more audit evidence in those areas where weaknesses are
strongly pronounced.
• The auditor should record these weaknesses in his working papers so that in the future if
engaged again, he may concentrate on such areas with weak controls.
Kavungya answered the question on May 14, 2019 at 12:54


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