Evaluating Internal Controls

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Submitted By prin
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Evaluating Internal Controls
Internal controls are rules and regulations that companies follow to avoid fraud within its company. Evaluating an internal control system in phases helps to understand the process better. The evaluation occurs within 3 phases. Each phase is designed to test the internal controls to ensure performance is working will. By the last phase auditors give recommendations to companies on how to improve on internal controls.
Phase 1
When auditors are “investigating” a company, they are like detectives and phase 1 helps with the foundation of the case. In this stage auditors can as all standard questions of an investigation Who, What, When, Where, and Why. The foundation is set using questionnaires, flowcharts and other standard procedures auditors use when conducting an audit. This is the phase where the company’s culture environment is evaluated. Delegation of duties along with company’s values are questioned and reviewed. Although, Phase 1 and 2 can be performed together for the purpose of this paper, both are discussed in separate selections.
Phase 2
In phase 2 auditors use the information from phase 1 to detect a company’s strengths and weakness. According to the text, Strengths are specific features of good general and application controls. Weaknesses are the lack of controls in particular areas. The auditors’ findings and preliminary conclusions should be written up for the audit files (2007, p568). In this stage systems are tested and graded. Risk is ranked from highest to lowest and auditors conduct different substantive test to ensure the controls work properly and need a little more work. The extra tests ensure the numbers reported are correct. Phase 2 is the preliminary round of the audit. Phase 3 is the testing phase.
Phase 3

By Phase 3 auditors know which controls need testing and at what intensity the…...

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