The evaluation of the internal control system defines the strengths and weaknesses of the business organization through a quantification of all its resources
Through the examination and objectives of internal control, records and evaluation of the financial statements, the confidence that the entity must present to society is created. The evaluation of the internal control system based on principles, rules, standards, procedures and systems of recognized technical value are the foundation of a good financial audit.
SOS
The financial auditor must ensure that all the appropriate and necessary measures are fulfilled in the implementation of the internal control evaluation system.
Assessment methods
1. Statistical sampling
In the internal control evaluation process, an auditor must review high volumes of documents, which is why the auditor is forced to schedule selective tests to make inferences about the reliability of their operations.
To give certainty about the objectivity of a selective test and its representativeness, the auditor has the resource of statistical sampling, for which the following essential aspects must be taken into account:
- The sample must be representative The sample size varies inversely with the quality of the internal control The examination of the included documents must be exhaustive in order to make an adequate inference There will always be a risk that the sample is not representative and therefore that the conclusion is not adequate.
2. Questionnaire method
It consists of the evaluation based on questions, which must be answered by those responsible for the different areas under examination.
Through the responses given, the auditor will obtain evidence that must be verified with alternative procedures which will help determine if the controls are operating as designed.
The application of questionnaires will help to determine the critical areas in a uniform and reliable way.
3. Narrative method
It consists of a detailed description of the most important procedures and the characteristics of the internal control system for the different areas, mentioning the records and forms involved in the system.
4. Graphic method
Also called flow charts, it consists of revealing or describing the organic structure of the areas under examination and of the procedures using conventional symbols and explanations that give a complete idea of the entity's procedures.
It has the advantages that:
- Identifies the absence of financial and operational controls Provides a panoramic view of operations or the entity Identifies deviations from procedures Identifies surplus or missing procedures Facilitates understanding of the auditor's recommendations to management on accounting or financial matters.
The evaluation must ensure the integrity and accuracy of the operations carried out by the economic entity
Evaluation techniques
1. Eye verification techniques
Among these are:
- Comparison, observation, selective review, tracing.
2. Verbal verification techniques
- Inquiry.
3. Written verification techniques
- Analysis, Reconciliation, Confirmation.
4. Documentary verification techniques
- Checking. Computing.
5. Physical verification techniques
- Inspection. Comment
All these evaluation techniques can be found applied in the different types of articles that have to do with this topic in the financial channel
Evaluation sheet
The evaluation form graphs and quantifies the level of performance of the company, is based on:
- The criteria or areas to be evaluated The ordering of commitments The sub-areas or units to be evaluated within the respective area Control qualification Deviation marks Compliance with recommendations
