INTERNAL CONTROL

Short Questions
1. What do you mean by term internal control?
Ans. Internal control means the whole system of control employed by
the management in order to carry on the business of the company
more efficiently, safeguard its assets and secure as far as possible the
accuracy and reliability of its records.
2. Explain the control environment shortly?
Ans. The control environment which means the overall attitude,
awareness and actions of directors and management regarding the
internal control system and its importance in the entity. The control
environment has an effect on the effectiveness of the specific control
procedures.
3. Write factors which are included in the control environment?
Ans. Factors reflected in the control environment includes:
(1) The functions of the board of directors and its committees.
(2) Management’s philosophy and operating style.
(3) The entity’s organizational structure and methods of assigning
authority and responsibility.
4. Enlist any four steps which are involved in specific control
procedure?
Ans. Specific control procedures includes:
(1) Reporting, reviewing and approving reconciliations.
(2) Checking the arithmetical accuracy of the records.
(3) Approving and controlling of documents.
(4) Maintaining and reviewing control accounts and trial balances.
5. Shortly explain the categories of internal control?
Ans. The categories of internal control are explained below:
(a) Financial control: This category of internal control is mainly
concerned with legitimacy of expenditures and income and
security of assets.
(b) Management control: This includes the plan of organization and
the procedures and records that are concerned with the decision
processes leading to management’s authorization of
transactions.
6. Enlist the basic control areas of management control?
Ans. The following are basic control areas:
a) Objectives
b) Organizational procedures
c) Organizational structure
d) Management information
e) Proper supervision
f) Review of operational efficiency
7. Why internal control has been established?
Ans. An internal control is established by the management in order
to carry on the business of the company in an orderly manner,
safeguard its assets and secure as far as possible the accuracy and
reliability of its records.
8. For what considerations the auditor should review the system of
internal control?
Ans. The auditor should review the system of internal control for the
following considerations:
 (1) To examines the weakness of system, if any
(2) To consider the proposition of introducing test check to be
performed during the course of audit
(3) Based upon above (1) and (2), determine exactly the extent of
work to be performed so as to enable the auditor to express his
opinion on the given set of accounts.
9. What are the objectives of management letter?
Ans. The objectives of management letter are as under:
(1) To identify any weakness in the internal control.
(2) To suggest adequate accounting control.
(3) To suggest improvements in the existing internal controls.
10. What points should be kept in mind by auditor while evaluating
control of small business?
Ans. The auditor while evaluating controls of small business should
consider the following points:
(1) Whether the control is adequately designed to provide
reasonable assurance that a control objective can be met.
(2) Whether the owner’s performance of the control procedure is
an incompatible function.
(3) Whether there is any risk of override of the control
procedures.