Actual testing and observation are necessary before

Actual testing and observation are necessary before such a record can be developed.
It may be recommended in cases where no formal control system is in operation and would be more suited
to small business.
➢ The basic
disadvantages
of narrative
records are:
To comprehend the system in operation is quite difficult .
To identify weaknesses or gaps in the system.
To incorporate changes arising on account of reshuffling of manpower, etc.

CA Ravi Taori
CA Ravi Taori
12.6
➢ Example of
Narrative
Records
FLOW CHART
It is a graphic presentation of each part of the company’s system of internal control. A flow chart is
considered to be the most concise way of recording the auditor’s review of the system.
It minimises the amount of narrative explanation and thereby achieves a consideration or presentation not
possible in any other form.
It gives bird’s eye view of the system and the flow of transactions and integration and in documentation, can be easily
spotted and improvements can be suggested.
CHECK LIST
This is a series of instructions and/or questions which a member of the auditing staff must follow and/or
answer.
When he completes instruction, he initials the space against the instruction.
Answers to the check list instructions are usually Yes, No or Not Applicable. This is again an on the job
requirement and instructions are framed having regard to the desirable elements of control.
Cheques

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CA Ravi Taori
12.7
➢ A few
examples of
check list
instructions
are given
hereunder:
Are tenders called before placing orders?
Are the purchases made on the basis of a written order?
Is the purchase order form standardised?
Are purchase order forms pre-numbered?
Are the stock control accounts maintained by persons who have nothing to do with:
• custody of work;
• receipt of stock;
• inspection of stock; and
• Purchase of stock?
The complete check list is studied by the Principal/Manager/Senior to ascertain existence of
internal control and evaluate its implementation and efficiency.
Examples
Sr
No Question Not Applicable Yes No Weakness Remarks
Minor Major
1
Is standard procedure
designed for different mode of
collection? .
2
Are employees given
orientation before starting
job? .
3 Is there segregation of duties? .
4
Whether cheques received
records are maintained? .
5
Do they save scanned copy of
cheque received or cheque
number? . .
6
Do they have standard
procedure for cheques
returned? . .
INTERNAL CONTROL QUESTIONNAIRE
The questionnaire is usually issued to the client and the client is requested to get it filled by the concerned
executives and employees.
In the questionnaire, generally questions are so framed that a ‘Yes’ answer denotes satisfactory position and
a ‘No’ answer suggests weakness . Provision is made for an explanation or further details of ‘No’ answers. In
respect of questions not relevant to the business, ‘Not Applicable’ reply is given.