10.2 Internal Control

Internal control is the process designed, implemented and maintained by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of the entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.

1. Internal Control Components

• Control Environment

• Entity’s Risk Assessment Process

• Information System

• Control Activities Relevant to the Audit

• Monitoring of Controls

2. Test of Control

A test of control involves the auditor obtaining evidence that the client has implemented the controls they say they have, and that they have worked effectively, during the period.Typical methods of controls testing include:

• Observation of control activities, e.g. observing the inventory count to ensure it is conducted effectively and in accordance with the count.

• Inspection of documents recording performance of the control, e. g Inspecting an order for evidence of authorization.

• Computer assisted audit techniques, such as test data to ensure the programmed controls are working effectively.