Businesses use internal controls to prevent fraud, waste, and abuse, and to ensure the accuracy and integrity of their financial statements. Internal and external auditors place a lot of specific focus on internal controls because of their high importance.
In order to ensure a comprehensive assessment, many auditors use detailed internal control questionnaires to evaluate the internal control environment. While some still use paper-based questionnaires, many audit teams now prefer an electronic format. Here’s a quick guide to the kinds of questions an audit team might include and how they might use the questionnaire during an audit.
Typical contents
The contents of internal control questionnaires can be customized for a particular industry or business and may vary between different audit firms. However, most include general questions about the company’s mission, compliance situation, and control environment. The questionnaire may also have sections dealing with fraud-prone or mission-critical elements of the company’s operations, including:
- Inventory
- Property, plant, and equipment
- Accounts receivable
- Intellectual property inlcuding copyrights, patents, and customer lists
- Payroll
- Trade payables
- Related party transactions
Since most questions require only yes-or-no answers, questionnaires don’t typically take very long to complete. However, some questions may also leave space for open-ended responses, such as asking for a list of controls limiting physical access to a company’s inventory.
Three methods for administering the internal control questionnaire
Internal control questionnaires are usually completed according to one the following three methods:
Completed by company personnel
In these cases, the questionnaire is completed independently by management. In order to ensure that the right individuals are selected to participate, the audit team might ask for the company’s organization chart. Before assigning the questionnaire, the audit team may also conduct preliminary interviews to confirm their selections.
Completed by the auditor based on inquiry
When this method is used, the auditor meets with company personnel and discusses a particular aspect of the company’s internal control environment. The auditor then completes the relevant section of the questionnaire before asking those interviewed to review and validate their own responses.
Completed by the auditor after testing
In these cases, the questionnaire is completed by the auditor after they’ve observed and tested the internal control environment. Auditors typically ask management to review and validate responses after they complete the questionnaire.
Ensuring accurate reports
The internal control questionnaire is designed to help audit teams understand your company’s internal control system. When combined with your audit team’s expertise, training, and analysis, the questionnaire assists auditors in producing accurate, useful audit reports.
Your business can benefit from the questionnaire by gaining insight into holes in your control system that may be vulnerable to fraud, abuse, and waste. For more information, contact us today.