SYLLABUS PART B INTERNAL CONTROLS

OVEREVIEW
1 Purpose of internal controls
2 Internal controls frameworks
3 Corporate governance and internal controls
AUDITORS AND INTERNAL CONTROLS
Function and importance of internal audit

Internal audit (IA) is an independent appraisal activity established within an organisation as a
service to it

It is a control which functions by examining and evaluating the adequacy and effectiveness of
other controls

in a large organisation IA will be a separate department
in smaller entities, it could be that an individual is allocated to carry out specific tasks of
an IA nature
it may be that the IA function is outsourced
if it is an in-house department, it is important that the function is structured in an
appropriate way



Scope of internal audit

Management will prescribe the scope and objectives of the IA department, but these will typically
include:


review of the accounting and internal control systems
detailed testing of transactions and balances
review of the economy, efficiency and effectiveness of operations
review of the implementation of entity policies
special investigations
assisting the external auditors

Independence of internal audit

for an audit function to operate successfully, it is necessary that the auditor is
independent
applies equally well to internal auditors as to external auditors
for internal audit to be effective, the reviews which they carry out must be conducted and
reported on an independent basis
the equivalent of the confidence which is given by the external auditor being independent
Comparison of internal and external auditors

Potential threats to independence

In the syllabus for the earlier auditing paper,
MANAGEMENT INFORMATION
SYSTEMS
Information flows are vital if management is to be able to manage risk and monitor internal
controls
Three elements which should be apparent:
both internal and external information is required in order that informed decisions can be
made
the information should be provided on a regular basis in order that management can
monitor performance of economy, efficiency and effectiveness
there needs to be clearly defined, effective channels of communication within the
organisation so that management receive the information on a timely basis














QUESTIONS BANK


DECEMBER 2007 QUESTION 1 (d)

JUNE 2008 QUESTION 1 (e)

JUNE 2009 QUESTION 1 (b)

DECEMBER 2009 QUESTION 1 (b) and (d)

DECEMBER 2010 QUESTION 1 (c)

JUNE 2011 QUESTION 1 (a)