Checklist for Evaluating Internal Controls

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Introduction

Internal control is a key element that should be incorporated into the operation of a firm. The core objective is to integrate high standards in the operation of a firm. Effective internal control can be conducted through the integration of a checklist (Louwers & Strawser, 2007, p.65). For efficiency, internal control should be conducted continuously in order to review whether all the internal processes are being conducted appropriately. In order to attain this, a comprehensive checklist should be developed. This makes checklists act as planning tools that are used in evaluating the instituted internal control structures. This enables the management to identify the required adjustments to the already existing controls.

Aim

The report entails an analysis of how a checklist can be used to conduct internal control.

Scope

Introduction gives a background of internal auditing using checklists. A comprehensive checklist that can be used in conducting internal control is outlined. The various phases of control evaluation are outlined and discussed.

	Checklist	Meet	Needs work	Not applicable
1	Does the firm develop its annual budget by including the sources and cost of finance and other costs involved?
2	Does the management compare its actual financial statements with the projected financial statement in an effort to understand its finances?
3	Does the firm undertake long term planning by developing a multi-year budget?
4	Has the management incorporated the most effective accounting method in conducting internal control?
5	Does the firm’s accounting department reconcile its bank statements on a monthly basis with all the cancelled checks?
6	Has the firm clearly stipulated a policy which gives only a limited number of individual’s authority to execute certain tasks such as depositing and disbursement of cash?
7	Does the firm have a monitoring mechanism to control all taxes paid by its employees and does it pay the taxes when they are due?
8	Does the firm conduct cash flow analysis regularly?
9	Does the firm have an internal fund from which it can source finances to cover its operating expenses for a period of 3 months?

Phases of the control evaluation

The success of internal control depends on the effectiveness of planning and the development of an effective communication mechanism between the firm and its internal auditor. A number of phases are involved in internal control. These include planning, conduction of fieldwork, writing the report and conduction of a follow-up (Louwers & Strawser, 2007, p. 56).

Planning

This entails the formulation of concise audit objectives that guide the auditor in conducting investigations on all the significant areas of the organization. As a result, all the relevant areas of accounting are evaluated.

Fieldwork

This phase involves a number of stages. The first stage entails the evaluation of the firm’s internal control system. This is conducted by reviewing the firm’s documentation. The second stage entails testing the transactions to determine whether the laid down control mechanisms are actually integrated into the firm. This enables the auditors to determine the extent to which accountability has been integrated. The findings of the fieldwork are documented.

Progress reporting

Reporting of how internal control is being conducted is given to the firm’s management team. Reporting enables clarifications to be made and to include managements’ ideas that can aid in solving a particular problem.

Audit Follow-up

After the audit is complete, the management should liaise with the auditors and request the report. This enables management to evaluate whether there are any changes that have been undertaken since the audit was conducted.

Conclusion

Internal control can result in a firm attaining a high level of accountability. This is due to the fact that all the relevant issues are considered. One of the ways through which internal control can be attained is through the use of the checklist. The checklist should be comprehensive and consider the various phases of control evaluation.

Recommendation

Firms should incorporate the use of a checklist in conducting internal control.
The checklists should be evaluated and adjusted from time to time.

Reference List

Louwers, Ramsay & Strawser, T. (2007). Auditing and assurance services: a look beneath the surface (2nd ed.). London: Southampton Publishers.