Question

Auditor's must obtain and understand the client's internal control and determine whether the controls have been implemented on all engagements. The auditor may also be required to test the operating effectiveness of internal controls? when is the auditor required to test whether or not the controls are operating effectively?

Answer 1

Internal Audit is an ongoing audit program in an organisation which can happen at any scheduled time as per the management or audit committee decision like quarterly, semi annually, annually etc. So whenever the internal audit starts in an organisation, auditors must understand the internal control implemented in the organisation and to test the effectiveness using various measures and the auditing committee should be assessed that proper control policies, procedures and activities have been established and operating as intended and to ensure the risk faced by the organisation are with in the tolerance level.

Reviewing the internal Controls

> Strategies of management in dealing with the identified risks, is there any internal control established for the identified risk

> Does the management receive relevant,timely and reliable reports on the internal controls established

> Are there key risks are defined and mitigating actions are established

> Is there any internal control findings or weaknesses indicate a need for more extensive monitoring of the internal control system?

Steps for evaluation process include the following

1. Determine the extent and types of controls being used by the client.
2. Determine which of these controls the auditor intends to rely upon.
3. Based on the first two steps, determine which audit procedures should be expanded or reduced.
4. Make recommendations to the client regarding how to improve its system of internal controls.