Ad Free CAclubindia and Daily Updates on your Mobile. Subscribe Now!

Internal Control System

SASMITA (AUDIT MANAGER) (97 Points)

27 September 2020

how to ensure that there is internal control system is implemented in a manufacturing unit.

Reply
Follow
Share

7 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 27 September 2020

It’s done through Variance analysis if any adverse conditions are detected. Then it is transferred to Auditors report about the lag in a manufacturing unit. If everything is favourable, it is hard to improve management control systems. Anyways, top down approach or bottom up approach to control systems will not tell us the unobservable indicators to improve cost savings. Many companies implement philosophies and cost management techniques right from the inception. If you can save anything after that, depends upon a manager’s observation of eliminating waste or unwanted activities. That is why, bonuses are declared for managements efficiency, Internal management control systems is how things are synchronised and widely important in services industry (information is the key). One important aspect of it is budgeting used in a manufacturing sector. I’ll reply back if I remember anything more.

2 Like

Upgrade to CAclubindia Pro. Subscribe Now!

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 27 September 2020

I have referred my Auditing notes and it mentions that internal control is already established along with the company and annually, an auditor tests for two things:

Strong internal controls & weak internal controls.

for your reference, the five elements of control systems is

(1)The control environment

(2) The entity’s risk assessment process
(3) The information system
(4) Control activities (internal controls)
(5) Monitoring of controls

As one is aware, the top management has a checklist of all of these duties to ensure communication is perfect in controls. So it’s almost qualitative. To me, I take performance control systems as a base for performance and incase of adverse conditions, one of the risk assessment had failed.

1 Like

SASMITA (AUDIT MANAGER) (97 Points)
Replied 27 September 2020

Thanks for the reply
but in the process of purchase of raw material how you will ensure that internal control system is strongly implemented

1 Like

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 27 September 2020

Again it falls under substantive procedures: stock

It mainly focuses on presentation and disclosures INDAS 2, inventory. Auditors count, timing of stock count is for Auditors evidence, but however, IndAS 2 covers presentation, recognition, measurement and disclosures. No principle or rule had ever considered purchase price into this standard.

For your query, the auditors evidence of purchase, count, warehousing, and timing of calculating closing stock needs to be mentioned (documented) in their reports. Now again, PURCHASES CUT-OFF meaning, all transactions related to purchases must be recorded in the same year for reporting Inventory & Creditors accurately. I’m of the opinion that, here, IndAS plays an important role and Auditors inspection of stock helps to recognise the right amount of payables and inventory in the balance sheet. From this, you can guess what went wrong! If closing balances are wrong, there is a weak internal controls.

1 Like

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 27 September 2020

Once again I think the actual end results should be inline with budget. If not, variance analysis along with physical stock inspection (Auditors evidence) reveals any flaws in measuring stock.

Upgrade to CAclubindia Pro. Subscribe Now!

SASMITA (AUDIT MANAGER) (97 Points)
Replied 27 September 2020

Thanks for the reply

Viji Vijayaraghavan Kuppuswamy (41 Points)
Replied 14 December 2020

You can check from ordering till goods received and payment made . Purchase mgr should not handle either payment or stores functions also . In Mid size cos this can be a practice to save costs .
Inward inspection of goods is very important . Total trail should be checked