Internal Control Structure Questionnaire

Internal Control Structure Questionnaire

CONTENTS

Instructions
Control Environment
I. / General Accounting System and
Control Procedures
Accounting System and Control Procedures
Purchases and Expenses

Instructions:

The following questionnaire has been designed to provide the information necessary to evaluate the client's internal control structure with regard to the control environment and the purchases controls.

The majority of the questions have been prepared with spaces to indicate positive or negative responses. Each question should be answered by a check mark in the appropriate column. When a question is not relevant in a particular situation, a check mark should be indicated in the "not applicable" column

The questions were prepared so that a positive answer will indicate a satisfactory degree of internal control. A negative answer should influence the examiner to amplify the answer, or to cover the related question with a supplemental statement to make the questionnaire more informative and meaningful.

Answering the questions does not complete the investigation of the client's internal control structure. The auditor in charge must be satisfied through observation, discussion with the client, and/or verification by testcheck that the procedures indicated by the answers are actually being followed.

At the end of each section of the questionnaire, space is provided for notations as to the strengths and weaknesses of the internal control structure as it relates to that section of the questionnaire. All weaknesses should be transferred to the weakness investigation worksheet for subsequent review.

Before notifying the client of any major shortcomings as revealed by the survey, these shortcomings should be discussed with the executive in charge of the audit who, in turn, should follow up and decide on appropriate courses of action. The auditor making a survey of a phase of internal control should sign that particular section of the questionnaire. The entire questionnaire should be signed by the auditor in charge. After evaluation by the executive in charge, the questionnaire should be filed in the permanent file with the workpapers.

Internal Control Structure Questionnaire

Name of client
Address

Auditor in charge Executive

Signed by / Date of
Preparation / Signed by / Date of
Preparation

Subsequent Reviews and Evaluations

Reviewed or Evaluated by: / Date

Review and Evaluation Comments

CONTROL ENVIRONMENT

Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
1. / General Accounting System and Control Procedures
A. / Does the client have a current organization chart?
If so, obtain a copy for the permanent file.
B. / Has the client established a chart of accounts?
If so, obtain a copy for the permanent file.
C. / Do accounting manuals clearly set forth the accounting procedures?
If so, obtain copies for the permanent file.
D. / Does the client have:
1. / A controller?
2. / An internal auditor?
E. / If an internal auditor is employed:
1. / Is an audit staff under his or her direct supervision?
2. / Do the internal auditors furnish reports of their examinahons?
3. / Do they report to an executive officer other than the chief accounting officer? If so, designate.
4. / Have their reports been review by us?
F. / Is the general accounting department completely separate from:
1. / Cash receipts and disburse- ments?
2. / The sales department?
3. / The purchasing department?
4. / Manufacturing and/or cost departments?
G. / Does the client bond all employees who handle cash, checks, securities, and other valuables?
H. / 1. / Are regular vacations enforced for all such employees?
2. / Are their regular duties temporarily assigned to other employees?
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
I. / Does the head office maintain adequate control over branch offices?
J. / Are expenses and costs under budgeting control?
K. / Does a responsible employee or official:
1. / Supervise insurance coverage?
2. / Periodically review insurance coverage?
L. / Are journal entries approved by:
1. / The controller?
2. / Another executive officer?
M. / Are standard journal entries prepared for the recurring monthly closing entries?
N. / Do journal entries require adequate explanation, and are they ade-quately supported by vouchers?
O. / Are periodic financial statements prepared and submitted to management?
P. / If so, are they designed to alert management to abnormal fluctuations in costs, revenues, inventories, etc.?
Q. / 1. / List the names of those employed exercising the following functions:
Treasurer
Controller
Senior accountant
Internal auditor (senior)
Secretary
General ledger bookkeeper
Account payable
Bookkeeper
Cashier
Department Heads:
Personnel
Sales
Credit
Shipping
Purchasing
Receiving
Cost
Payroll
Tax
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
2. / Is any one of the above related to any others, to the best of the information readily available to you?
3. / If so, who?

Based on all information available, comment on the adequacy of internal control. For all weakness indicate, recommend corrective actions that should be taken by the client and transfer weaknesses to the internal control weakness investigation work sheet.

Name Date Comment

Originally prepare by:

Reviewed in subsequent examination by:
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
V. / Notes and Accounts Receivable
C. / Are the customers’ ledgers maintained by employees who do not handle cash receipts or their records?
D. / Are the customer’s ledger balanced at least monthly, and the total reconciled to the general ledger control account?
E. / Are adequate credit and collection procedures in effect?
F. / 1. / Are the accounts aged regularly?
2. / If so, are they subject to a review by an authorized executive?
G. / 1. / Are statements remitted to all customers?
If not, how often are they mailed?
2. / If so, are they sent by an employee who has no access to cash and is independent of all accounts receivable personnel?
3. / Before these statements are mailed, do they remain under the control of this employee?
4. / Are discrepancies reported by customers investigated by the same employee?
H. / 1. / Are material delinquent accounts listed periodically?
2. / Are they subject to review by an official other than the credit manager or accounts receivable bookkeeper?
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
I. / Are writeoffs of bad debts approved by an official other than the credit manager or the accounts receivable bookkeeper?
J. / Are bad debt accounts kept under memo ledger control and followed up?
Explain the procedure.
K. / Do credit memos require approval by a responsible official?
L. / Are credit balances memos prenumbered?
M. / Are credit balances review periodically?
N. / Are discounts allowed after the dis-count date, or in excess of normal credit items approved by a responsible official?
O. / Are credit limits established and strictly adhered to?
P. / Are customers’ credit ratings reviewed periodically
Q. / Are credits for goods returned checked against receiving reports?
R. / Blank
S. / Blank
T. / Is the management of the credit department completely separated from the sales department?
U. / Is access to the accounts receivable ledgers denied to the cashier?
V. / Does a memorandum accounts receivable ledger exist for all mer-chandise our on consignment?
Describe the recording procedures followed by the client if such consigned merchandise is material in amount.
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
W. / Does a responsible official (senior to the accounts receivable bookkeeper) approve journal entries affecting accounts receivable?

Name Date Comment

Originally prepare by:

Reviewed in subsequent examination by:
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing

Accounts Payable

B. / Accounts Payable
1. / Is the voucher register or accounts payable ledger reconciled monthly to the general ledger control account?
2. / Are vendor statements reconciled regularly to the related ledger accounts ( or to open items in the accrual and voucher registers)?
3. / As a result of these reconciliations, are discrepancies immediately followed up and appropriate adjustments made, if necessary?
4. / Do accounts payable adjust-ments require the approval of a designated official (e.g., writing off of debit balances)?

Name Date Comment

Originally prepare by:

Reviewed in subsequent examination by:
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
XI. Purchases and Expenses
A. / Does the client have a purchasing department?
B. / If so, is it independent of:
1. / The accounting department?
2. / The receiving department?
3. / The shipping department?
C. / Are purchases made only after respective department heads sign purchase requisitions?
D. / Are all significant purchases channeled through the purchasing department?
E. / Are all purchases made by means of purchase orders sent to vendors?
F. / Are prenumbered purchase order forms used?
G. / Are purchase orders required for all major items?
H. / Blank
I. / Blank
J. / Are purchase prices thoroughly examined and approved:
1. / By a responsible official in the purchasing department?
2. / By any other responsible official?
If so, identify.
K. / At the time of receipt, does someone independent of the purchasing department check the merchandise as to:
1. / Quantity?
2. / Condition?
L. / Is the receiving department denied access to purchase order copies for authority to accept materials?
M. / Does the receiving department prepare receiving reports?
N. / If so:
1. / Are such reports prepared for all items (miscellaneous items included)?
2. / Are such reports pre-numbered?
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
O. / Are copies of receiving reports :
1. / Furnished to the accounting department?
2. / Furnished to the purchasing department?
3. / Filed permanently in the receiving department?
P. / When purchased goods are returned to the vendors:
1. / Are they cleared through the shipping department?
2. / Is the accounting department notified promptly?
Q. / Are unmatched receiving reports, purchase orders, and vendor’s invoices periodically investigated for proper recording?
R. / Are vendors’ invoices registered immediately upon receipt?
S. / If so, does the purchasing department check these invoices:
1. / Against purchase orders?
2. / Against receiving report (as to condition and quantity)?
T. / If not, are the invoices checked by:
1. / The accounting department?
2. / Another department?
U. / Do safeguards exist for the proper accounting for partial deliveries of purchase orders?
V. / Are back orders maintained for future reference?
W. / Does a responsible official approve invoices for payment?
X. / For the checking of invoices, have definite lines of responsibility been established as to:
1. / Prices?
2. / Extensions and footings?
3. / Freight charges or allow-ances?
4. / Credit terms?
Y. / Does a responsible employee designate the appropriate general ledger account to which the invoices are to be posted ( according to established accounting policy)?
Z. / Are these designated accounts periodically tested and reviewed?
Answer / Basis for Answer
Yes / No / Not
Appli-
cable / Obser-vation / Discus-sion / Testing
AA. / Do department heads or executives approve invoices not involving materials or supplies before payment ( such as advertising fees, electric bills, taxes, etc.)?
BB. / Blank
CC. / Blank
DD. / Are vouchers and supporting documents for purchases and expenses reviewed and initiated before payment is authorized by
1. / An auditor of disbursements?
2. / Another designated em-ployee?
If so, explain.
EE. / If the answer to question DD is negative, does the accounts payable clerk or bookkeeper process for payment only those invoice bearing complete approval ( i.e., rubber stamp endorsement)?
FF. / Are all purchases routed through a purchase register or voucher register before going through cash disbursements?
GG. / If any purchases are directly booked in the cash disbursements ledger, are adequate vouchers provided?
Explain.
HH. / Is the accounts payable ledger or voucher register reconciled monthly to the general ledger control accounts?
II. / Are statements from vendors periodically reviewed and checked against open customer liabilities by the accounting department?

Name Date Comment

Originally prepare by:

Reviewed in subsequent examination by: