15 February 2010
A very good issue for discussion.
Thanks for asking.
First check the internal control procedures of the company.
For that purpose see the Flow Chart of various operations and respective persons responsible for that.
See the effectiveness of the internal checks by surprise checks when you conduct the audit.
Ask the employees about the procedure of various activities. If they can explain their system well; some assurance can be had about internal controls that these are in existence.
1. In Manufacturing Department; issue of Raw Materials is a very big issue and it consumes a lot of inventory.
2. See the issue procedure of the raw materials so that there is no scope of embezzlement of raw materials by the employees specially if they are lady employees.
3. Check the output of various labours with other labours output. If someone is slow without any reason; there may be a possibility of embezzlement.
4. See the input/output ratio as per standards set by the management and its actual consumption and production.
5. See the deviation reported by the production department to the management.
(Practical use of Standard Costing).
6. Check the previous audit reports - internal audit report and statutory audit reports.
7. If both are not available then see the project reports submitted by the company to the bankers for loan purpose. It may throw some light on the plans of the company.
CAclubindia
