AAF8
Syllabus C. Internal Control C2. The use and evaluation of internal control systems by audito

C2a. How Auditors Record Systems 1 / 3

Syllabus C2a)

Explain how auditors record systems of internal control including the use of narrative notes, flowcharts and questionnaires

The first step the auditor will take is to document the system

This may be done in several ways including:

  • Organisational Charts

  • Notes made by the auditor

  • Internal Control Questionnaire (ICQ)

  • Internal Control Evaluation Questionnaire (ICEQ)

  • Flowcharts - can make complex systems easier to follow

Narrative notes - Advantages

A written description of the system showing what happens and the controls operating at each stage

  1. They are simple to record after discussion with staff members

  2. They are simple to understand by all members of the internal audit team

Narrative Notes - Disadvantages

A written description of the system showing what happens and the controls operating at each stage

  1. Narrative notes can become too much, especially if the system is complex

  2. They don't identify control exceptions - they just record what is there

ICQ's and ICEQ's - Advantages

...simply a list of questions

ICQs test if controls exist 
ICEQs test the controls' effectiveness

  1. Super quick to prepare

  2. They ensure all controls exist - so any deficiencies are highlighted

ICQ's and ICEQ's - Disadvantages

...are simply a list of questions

ICQs test if controls exist 
ICEQs test the controls' effectiveness

  1. Too easy for staff  to overstate controls present (as the questions relate to potential controls)

  2. A standard list of questions may miss out unusual controls

Flowcharts - Advantages

These diagrammatically illustrate the internal control system 

Lines show the sequence of events
Symbols signify controls (or documents)

  1. It is easy to view the system as a whole because it is presented in one diagram

  2. Standard controls symbols means missing controls are easy to spot

Flowcharts - Disadvantages

These diagrammatically illustrate the internal control system 

Lines show the sequence of events
Symbols signify controls (or documents)

  1. Changes can be difficult as often the whole flowchart needs re-drawing

  2. Narrative notes will still be needed to explain the flowchart and hence it can be time consuming