EVALUATING THE INTERNAL CONTROL SYSTEM
EVALUATING THE INTERNAL CONTROL SYSTEM
Flow Charts and Internal Control Questionnaires:
Use of the major symbols in flow charts
The Document symbol
Each document in the flowchart should have a vertical flow-line.
Such vertical flow-lines represent a
movement in time within a particular department. When the
document is moved to another
department, this movement in position will be represented by a
horizontal line; departments are
therefore listed across the
Here the document is originated in Dept
A. It is moved to Dept B, then Dept D and then Dept C.
Note that only vertical and horizontal
used, never diagonal lines.
The Operation symbol
Various operations will be performed on a document.
It will, for instance: be prepared, added up, used to prepare
other documents, etc.
Any operation, other than a check function, is represented by
the cross symbol.
Each operation symbol should be supported by a brief narrative
explaining the nature of the operation.
Kamran totals the invoice
Note that the operation symbol is positioned on a
vertical flow-line. It should never appear on a
horizontal flow-line since that would suggest in this
case that Kamran totals the invoice while it is
moving from one department to another.
The Information flow symbol
one document is
The movement of
information to the
sales invoice is shown
by a dotted
are always horizontal,
then continue for both
the order and the
Fauzia prepares an invoice
from the sales order
This example is wrong because:
narrative exists to explain
the nature of the operation;
(b) the sales invoice has
flow-line, it disappears into
The Check symbol
Sattar totals the invoice
Wajid checks the totals
shows a simple
check on a single
Pasha checks that all
goods dispatched have
This shows a check
Note the use of the
again and that both the
delivery note and the
sales invoice continue
with vertical flow-lines
of their own.
The filing symbol
Once documents have been processed they will often be filed
Such files are either
permanent or temporary.
The two sorts of file are denoted by the same symbol but the
temporary files are marked with a letter ‘T’.
It will often be useful to indicate the order of filing either
alphabetically or in
order. This can be done by
marking the symbol with the letter N, A, or D.
Filed awaiting delivery of
Checked by Zahoor
(weekly) got late delivery
When goods are received
purchase order initialed by
Note that with the
filing symbol the flow-line
document must continue.
permanent filing symbol
the flow-line stops since the
document has reached its
The book of account symbol
The flowchart should use the book symbol to show the
book which is
already in existence. It
should also show the book being re-filed once the
posting is completed.
Sohail posts invoices to the SDB
Note that the
same flow-line principles apply to books as to documents.
A vertical flowline
is needed which ends with the re-filing of the sales day book
which will be kept
Depicting multi-part sets of documents
purchase order sets
Note that each part of the set must have a flow-line emanating
from it. In this
example; PO1 is sent to the supplier, PO2 goes off to another
department and PO3
is filed numerically
Preliminary Evaluation of the System
ascertained, confirmed and recorded
the system, the auditor now needs to carry out a preliminary
evaluation of the system in order to make a decision as to
whether he will:
• Rely on internal
controls and adopt a systems audit approach, or,
• Perform extensive
substantive testing. Using a verification approach to the audit.
Internal Control Questionnaire
• Used in large company
• Used to place reliance
on internal controls
• Used to design audit
An ICQ is a formal and usually standardized document which
1. A list of internal controls in existence and
2. Highlights any weaknesses.
clients systems of accounting and
the control system thus recorded, and
those controls which indicate
strengths in the system upon which the auditor
will seek to place reliance, and
those areas over which there are weak
or no controls and which therefore
must be subjected to more extensive substantive testing and
reported by inclusion in the
Construction of an ICQ
I) It is good practice when designing ICQs to state, as a brief
i. A list of control objectives which each sub-system under
seek to achieve
ii. Any business considerations specific to the enterprise under
should be taken into account.
The reason for this is essentially to highlight for the audit
staff key areas for their consideration to the audit
II) The questions in an ICQ should be designed to ascertain
whether the control objectives are being
achieved and should therefore cover such aspects as:
a. Instructions given to staff in the performance of their
b. Authorization procedures
c. Documents and procedures used to originate transactions
d. Recording procedures
e. Sequence of procedures
f. Custody procedures
g. Relative independence of the persons involved at each stage
of a transaction (i.e. segregation of duties).
III) The questions should be framed such that a Yes/No answer is
given, with a No answer usually
indicating a control weakness.
IV) An ICQ should carry such basic information as:
(a) The name of the document (ICQ)
(b) the system to which it relates (e.g. purchasing cycle)
(c) the client to whom it relates
(d) the accounting period under review
(e) evidence of who has prepared and reviewed the document
(f) the provision of columns for:
- Yes and No answers
- comments where neither Yes or No are applicable
- indicating the significance or otherwise of apparent
- references to audit programs
- references to Management Letters.