(a) Understanding and describing the internal control system

Review of the internal control system, the first thing you should know about the internal control system. Generally speaking, any unit, regardless of the size and production and operation characteristics, there is always a certain internal control system, the existence of differences is mainly manifested in the soundness of its internal control system, effectiveness in the degree of difference.

Understanding the internal control system should be done mainly the following two work:

1. Collect information and preliminary investigation. Collection of information refers to the collection of documents related to the internal control system, management systems, rules and regulations, charts, protocols and other written or unwritten provisions. For example, the economic responsibility system, job responsibility system, labor and personnel system, planning and management system, financial management system, purchase management system, price measurement management system and so on. Through the collection of information, you can initially understand whether a unit has established the necessary internal control, its job setup and division of responsibilities in line with the principles of internal control.

Through the collection of information, if it is found that there are still unclear or blurred boundaries in the internal control system, it should be investigated to the relevant departments and relevant personnel. Information gathering and preliminary investigation can be done separately or in combination.

2. Describe the internal control system. Through the collection of information and preliminary investigation, a unit of the internal control system has a general understanding of the situation. In order to further review the needs, should be recorded in a certain way, in the internal control system audit is called to describe the internal control system. The methods of describing the internal control system include the written description method, the questionnaire method, and the flow chart method. These are further described in Section III of this chapter.

(ii) field test internal control system

Through the collection of information and understanding of the description, we have a preliminary grasp of the basic situation of a unit's internal control system. But whether the internal control system is effective, relying only on written information or preliminary investigation is difficult to make a judgment. Audit practice has proved that: even the best internal control system, even if written on paper, posted on the wall, if the staff concerned do not follow the rules or violations, will directly affect the internal control system control effect. Therefore, the internal control system must be field tested.

The field test of the internal control system in general there are two methods:

1. Sampling of relevant information for field testing. This method is for the review of an internal control system, take a part of the information to review, to see whether the handling of economic operations in line with the principles of internal control system. For example, the review of the material purchase system, we must sample check the receipt of goods, payment vouchers and supply-side sales invoices, through the review of these materials, check whether the material purchase business is completed by different departments, vouchers set up sound, whether the transfer of the required procedures.

The specific method of sampling information, the main choice of judgment sampling method or statistical attribute sampling method.

2. Field observation. Field observation is to go into the scene, according to the transfer of economic operations of the aforementioned program, to all aspects of field observation, verification. For example, the former cited material procurement business, should be respectively to the business (or purchasing man should be) department. Warehousing department, accounting department for observation. The key links are particularly careful to observe and verify, such as warehousing department acceptance link, it should be checked in the acceptance of the number of acceptance, whether after measuring, checking catty or feet, to ensure that the number of real; and in the acceptance of the quality of acceptance, and whether after the physical properties or chemical composition and other tests to ensure that the quality is correct.

After the above two methods of field testing, you can make a judgment on the effectiveness of the internal control system.

(C) Evaluation of the internal control system

Evaluation of the internal control system is a comprehensive evaluation of the soundness and effectiveness of the internal control system of the audited entity and an evaluation opinion.

Evaluation of the internal control system should have two conditions. One is the basic situation of the audited unit's internal control system, and the second is the criteria for evaluation of the internal control system. According to the basic situation of the internal system of the audited unit, against the criteria for evaluation of the internal control system, in order to be audited unit of internal control is sound, effective, and put forward an evaluation opinion.

The basic situation of the audited entity's internal control system has been grasped through the above "understanding of the internal control system" and "field testing of the internal control system".

The evaluation criteria of the internal control system should be added as follows:

The evaluation criteria of the internal control system used to be based on the auditor's experience. In recent years, a "control model" or "ideal internal control model" has been proposed as a criterion for judging the soundness of controls.

"Control model" is the relevant departments or auditors, based on a large number of practical experience and the principles of the internal control system designed by the effective control model. Control model in accordance with different types of production and operation and different business systems were developed, its form is generally used in questionnaires, flow charts or text description, which indicates that there are business procedures, control links, and focus on labeling the "control points" and "key control points "Therefore, according to the control model to establish the internal control system, and strictly follow the implementation, can ensure the safety and integrity of assets and improve operational efficiency, with the control model against the actual internal control system of the audited unit, but also to determine whether it is sound and effective.

Design of the control model, one should adhere to the aforementioned principle of reasonable division of labor and power checks and balances, that is, to adhere to the incompatible positions separated from each other control. The core content of this control is a reasonable set of accounting and related jobs, clear responsibilities and powers, the formation of mutual checks and balances. Incompatible positions mainly include: authorization and approval, business operation, accounting records, property custody, auditing and investigation. The other is to seize the key control links in the business process, which is often referred to as "control points" and "key control points".

The following is an example of an internal control system for material purchasing, and a brief description of its methodology.

According to the principles of the aforementioned internal control system and procedural control requirements, materials procurement business can be divided into application, planning, contract, acceptance, warehousing, records and verification of such six steps, these six steps should be purchased by the procurement and supply, warehousing and transportation, finance and accounting departments to complete the division of labor. Procurement operations should be completed six control points;

① application. Application for material procurement should have a clear purpose, that is, for the production, operation or other necessary needs and procurement. Without application and approval and authorization, there will not be based on production, business needs and arbitrary procurement, and even the phenomenon of arbitrary procurement of defective waste products in order to "kickbacks";

② plan. Lack of balance of plans, will make the need for materials, inventory and procurement disconnect, or backlog, or shortage of phenomena;

3 contract. No contract stipulates the financial responsibility, will make the material purchased quantity, quality, price, period of lack of assurance;

④ acceptance. Lack of acceptance, will make the quantity and quality of the material will be chaotic;

⑤ storage. Failure to carry out warehousing procedures will result in the loss of or damage to materials upon arrival;

6 Records and reconciliation. If there is no accounting department to record and check correctly and timely, the safety and integrity of the material will lose the final constraints, the reliability of the accounting information is also lost to ensure.

The above control points if complete, material procurement can maintain good order, if one is missing, chaos may occur. And one of the "acceptance" is the most critical link, without it, material procurement may produce a total chaos, so acceptance is the key control point in the material procurement control system.

Summary of the above comments, the so-called evaluation of the internal control system, in essence, is to use the control model against the audited unit's internal control system to check, judgment activities. The so-called evaluation of its soundness, in essence, is to evaluate whether the internal control system of the audited unit meets the requirements of the control model, and whether the due control points are complete. The so-called evaluation of its effectiveness, that is, through the test, to see whether these control points have played the role of control. The key control points, in particular, are the focus of the evaluation.

(IV) Report on the internal control system

After evaluating the internal control system, an audit opinion on the internal control system has been formed, which is the main content of the audit report. In addition, there are two other aspects:

1. Recommendations for management improvement. For example, the evaluation of the internal control system, found that the due control points are not sound, or chapter and verse, resulting in a number of errors, drawbacks, should be addressed to these issues to the audited unit to improve the management of the recommendations.

2. Opinions on the scope, focus and methodology of further audits. At present, China's internal control system audit has not yet attracted sufficient attention. In the actual audit work, it is generally used as an audit step before the formal implementation of the audit. By reviewing the internal control system, the scope, focus and methodology of the audit can be determined. If these comments are contradictory to the original audit work program, the scope of the audit should be expanded and reported to the head of the audit for approval.