In order to determine the nature, extent and timeliness of the audit procedures to be performed, the auditor must carry out an adequate study and evaluation of the existing internal accounting control.
Compliance with this standard has given the CPA very valuable professional experience and, on the other hand, it has allowed users to appreciate the help that the CPA can provide them, when they are interested in obtaining an independent opinion regarding internal accounting control. existing in a company.
Scope and limitations
The report that the auditor prepares as a result of the internal control review aims to comply with the pronouncement regarding the auditor's responsibility to inform the client of the deficiencies found in the internal control techniques, as well as to provide suggestions to improve said techniques.
objective
Present the characteristics of the opinion or opinion that the accountant can prepare when hired to carry out a review of the accounting internal control system, as well as recommending certain procedures that can be applied in relation to work of this nature.
Methodology and procedures
Bulletins 3050 "Study and Evaluation of Internal Control" and 5030 "Methodology for the Study and Evaluation of Internal Control" (issued by the IMPC and the Auditing Standards and Procedures Commission), establish the basic concepts related to internal control and methodology and procedures that the auditor must follow, in order to comply with the work execution standard that establishes that he must study and evaluate internal control.
Knowledge of the basic concepts of the study of internal control in compliance with its objectives and the methodology for studying and evaluating it are essential requirements for the independent public accountant to be in a position to accept the performance of a job with the aim of giving a opinion on the existing internal accounting control system.
The concepts established in the aforementioned bulletins are applicable to the study of internal accounting control carried out in order to render an opinion on it.
Situations when issuing an opinion on internal accounting control.
When the public accountant is hired to carry out a specific study of internal accounting control and render an opinion on it, various alternatives may be presented:
a) You are hired to issue an opinion on whether the accounting internal control system is on a specific date or for a specific period.
b) Issue an opinion on the internal accounting control system in force in a company for the use of the administration.
c) Examine and comment only on a part of a company's internal accounting control system. In this case, you should consider this limitation in the scope of your work when designing the procedures in your work program and you should also discuss with the client the practical inconvenience of carrying out this type of reviews when they refer only to segments of a transaction cycle.
Relationship with the internal accounting control study when auditing financial statements
Although there are affinities with the study and evaluation of internal control as part of an audit of financial statements, the special reviews to render opinions on internal accounting control differ from the previous ones, both in scope and in their objectives.
In reviewing internal control in an audit of financial statements, the auditor does not consider the design aspects of the system, as his work is limited to identifying internal control techniques as they operate in practice.
In specific reviews on internal control, the design of the system and its relationship to what is happening are an important element that the auditor uses in his work.
Methodology
When carrying out a study and evaluation of the internal control system, the methodology that the public accountant should consider is the following:
a) Plan the scope of your work and prepare the relative program.
b) Review the design of the internal control system, identifying the specific control objectives of each cycle and the techniques established to meet those objectives.
c) Design a work program to test compliance tests of the internal control techniques established.
d) Evaluate the results of the review and prepare the corresponding opinion.
Recommended procedures
For the development of said methodology, they recommend the general procedures detailed below:
1. Planning:
It refers to some aspects that must be taken into account when carrying out the general risk analysis to plan the work:
a) Consider the nature of the company's operations, its assets, the degree of risk and the volume of transactions that are carried out.
b) Evaluate the environment that surrounds the company, the reputation of the administration, the quality and rotation of personnel, the environment in which it carries out operations with third parties (customers and suppliers), and in general the aspects that may cause the company deviates from established internal control procedures.
c) Determine if the established internal control procedures have been clearly communicated to all the personnel in charge of putting them into practice in a formal way or if they exist rather as a result of the experience. In the same way, the procedures to exercise the supervision of the internal control provisions, the financial information system, including the reports designed to plan and control operations such as budgets, periodic statistical reports, etc., should be considered.
d) The potential risk that the significant deficiencies observed in the internal control system may recur.
e) The scope and quality of the internal audit function.
f) The responsibility that the administration itself has assumed regarding the establishment of internal control techniques.
g) Weaknesses considered important, including corrective actions.
h) Recent important changes in the internal control system.
2. System Design Planning:
The objective of this review is to reach a preliminary conclusion about whether the system seems adequate considering the characteristics of the company, the nature of its operations and other elements such as:
a) The cycles in which the entity's transactions can be grouped, b) The flow of transactions through the accounting system.
c) The specific control objectives of the areas where there is risk.
d) The procedures or techniques that have been established to achieve the specific control objectives.
3. System Design Review:
When carrying out an examination of the internal control system, the accountant must consider the set of techniques that comprise it in accordance with the fulfillment of the internal control objectives for which they were designed.
In this sense, we can identify primary and secondary internal control procedures, and as an example of the first ones we could point out the preparation of monthly accounts of collective accounts and their periodic comparison with the control figures of the major, the preparation of bank reconciliations and the investigation and adjustment of items in transit, etc.
As an example of the latter, we can point out those control techniques that include the systematic comparison of the results obtained with the expected results, and reports regarding variations between actual and budgeted results, standard or estimated engineering costs, etc.
4. Preparation of the Work Program:
When the public accountant prepares a work program for the purpose of carrying out compliance tests, he must consider the nature of the tests, the specific objective of the work and, therefore, the scope and timeliness of the procedures.
Accordingly, the accountant must identify important control techniques in order to form an opinion regarding the internal control system and, consequently, design his work program to cover all those necessary tests in a timely manner.
When the objective of the examination is to express an opinion on the internal control system, the accountant must include in his work program as many tests of compliance as necessary to be able to form an opinion on it.
5. Evaluation of the Result:
Once the described work has been carried out, the accountant must apply his professional judgment in order to evaluate the results of his review.
As part of this process, it is necessary to identify any significant deficiency that may exist in the internal accounting control system, as well as the effect that such situation may have on the operations of the company as a whole.
On the other hand, an accountant must also evaluate the errors or irregularities found and the chances of errors or irregularities occurring due to failures in the established internal control techniques, the limitations inherent in any internal control system.
6. Work Papers:
As part of the documentation process of his work, the auditor will leave evidence in his papers of the planning carried out, the work programs, the conclusions he reached, the tests carried out, etc., as well as the statements of the administration, which should normally be documented in a letter of manifestations from the administration.
