Compliance with standard 3050 "Study and Evaluation of Internal Control" requires determining the nature, extent and timing of the audit procedures, has given the public accountant valuable professional experience.
When the auditor is hired to render an opinion on the internal control system, the objective of his work differs with the conditions described in the bulletins related to internal control. However, knowledge of the basic concepts of internal control, compliance with its objectives and the methodology to study and evaluate it, are essential requirements for the public accountant to be in a position to accept the performance of a job with the aim of giving an opinion on the existing internal control system.
Methodology
When a study and evaluation of the internal control system is carried out, 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) Verify through compliance tests the operation of the established internal control techniques.
d) Evaluate the results of the review and prepare the corresponding opinion.
Recommended Procedures
For the development of this methodology, they recommend the general procedures that are 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) The nature of the company's operations, its assets, the degree of risk and the volume of the transactions carried out.
b) The environment that surrounds the company, the reputation of the administration, the quality and rotation of the staff, 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) That the established internal control procedures have been clearly communicated to all personnel in charge of putting them into practice in a formal manner. In the same way, the procedures for supervising the internal control provisions, the financial information system, including the reports designed to plan and control operations such as budgets, periodic statistical reports, etc., must be considered.
d) The potential risk that 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.
When conducting an examination of the internal control system, the accountant must consider the set of techniques that comprise it based on compliance with 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 we could point out the preparation of monthly relations 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 consignments 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 the reports related to the variations between actual results and budgets, standard or estimated engineering costs, etc.
3. Preparation of the Work Program:
When the public accountant prepares the work program in order to carry out compliance tests that allow him to give an opinion on the internal accounting control system, he must consider the nature of the tests, the specific objective of the work and, therefore, the scope and timeliness of the proceedings.
Accordingly, the accountant must identify the important control techniques in order to form an opinion in relation to the internal control system and, consequently, design his work program to cover all the necessary tests in a timely manner.
When the objective of the examination is to issue an opinion on the internal control system, the accountant must include in his work program as many compliance tests as necessary to be able to form an opinion on it.
4. Evaluation of the Result:
Once the work described has been carried out, the accountant should 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 deficiencies 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, the accountant must also evaluate the errors or irregularities found and the possibilities of errors or irregularities occurring due to failures in the established internal control techniques, to the limitations inherent to any internal control system.
