{"id":1185,"date":"2021-07-09T22:09:16","date_gmt":"2021-07-09T22:09:16","guid":{"rendered":"https:\/\/alminawi.com\/?p=590"},"modified":"2025-09-27T12:58:29","modified_gmt":"2025-09-27T12:58:29","slug":"internal-audit-of-operations-episode-06-assess-the-effectiveness-of-internal-controls","status":"publish","type":"post","link":"https:\/\/e.americanpro.org\/?p=1185","title":{"rendered":"Internal Audit of Operations: Episode 06, Assess the Effectiveness of Internal Controls"},"content":{"rendered":"<p data-start=\"95\" data-end=\"520\">Once an internal auditor confirms that internal controls are <strong data-start=\"153\" data-end=\"176\">adequately designed<\/strong>, the next step is to <strong data-start=\"198\" data-end=\"228\">assess their effectiveness<\/strong>. This means determining whether the controls are <strong data-start=\"278\" data-end=\"305\">functioning as intended<\/strong>, consistently applied, and <strong data-start=\"333\" data-end=\"369\">performed by competent personnel<\/strong>. Auditors seek evidence that the control activities\u2014such as approvals, reconciliations, and segregation of duties\u2014are operating effectively over time.<\/p>\n<ul>\n<li data-start=\"522\" data-end=\"896\">\n<p data-start=\"524\" data-end=\"896\">In the <strong data-start=\"531\" data-end=\"548\">revenue cycle<\/strong>, internal controls must ensure that revenue is recognized only when earned, properly authorized, accurately recorded, and fully collected. One common control is the <strong data-start=\"714\" data-end=\"749\">three-way match (triangulation)<\/strong> between the <strong data-start=\"762\" data-end=\"809\">sales order, shipping document, and invoice<\/strong>, which ensures that revenue is recorded only for goods actually ordered and delivered.<\/p>\n<\/li>\n<li data-start=\"898\" data-end=\"1296\">\n<p data-start=\"900\" data-end=\"935\"><strong data-start=\"900\" data-end=\"925\">Effectiveness Testing<\/strong> includes:<\/p>\n<ul data-start=\"938\" data-end=\"1296\">\n<li data-start=\"938\" data-end=\"1054\">\n<p data-start=\"940\" data-end=\"1054\"><strong data-start=\"940\" data-end=\"955\">Observation<\/strong> \u2013 Watching staff perform control procedures (e.g., invoice generation after shipping confirmation)<\/p>\n<\/li>\n<li data-start=\"1057\" data-end=\"1130\">\n<p data-start=\"1059\" data-end=\"1130\"><strong data-start=\"1059\" data-end=\"1076\">Reperformance<\/strong> \u2013 Auditor redoes a control process to verify accuracy<\/p>\n<\/li>\n<li data-start=\"1133\" data-end=\"1212\">\n<p data-start=\"1135\" data-end=\"1212\"><strong data-start=\"1135\" data-end=\"1149\">Inspection<\/strong> \u2013 Reviewing documents for approvals, timestamps, or signatures<\/p>\n<\/li>\n<li data-start=\"1215\" data-end=\"1296\">\n<p data-start=\"1217\" data-end=\"1296\"><strong data-start=\"1217\" data-end=\"1228\">Inquiry<\/strong> \u2013 Asking staff how procedures are carried out and who performs them<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<li data-start=\"1298\" data-end=\"2465\">\n<p data-start=\"1300\" data-end=\"1474\"><em data-start=\"1300\" data-end=\"1319\">Practical Example<\/em>:<br \/>\nThe internal auditor at a retail distribution company evaluates the effectiveness of revenue-related controls. A tabulation of findings is shown below:<\/p>\n<div class=\"_tableContainer_16hzy_1\">\n<div class=\"_tableWrapper_16hzy_14 group flex w-fit flex-col-reverse\" tabindex=\"-1\">\n<table class=\"w-fit min-w-(--thread-content-width)\" data-start=\"1478\" data-end=\"2465\">\n<thead data-start=\"1478\" data-end=\"1636\">\n<tr data-start=\"1478\" data-end=\"1636\">\n<th data-start=\"1478\" data-end=\"1496\" data-col-size=\"sm\"><strong data-start=\"1480\" data-end=\"1493\">Assertion<\/strong><\/th>\n<th data-start=\"1496\" data-end=\"1533\" data-col-size=\"sm\"><strong data-start=\"1498\" data-end=\"1524\">Potential Misstatement<\/strong><\/th>\n<th data-start=\"1533\" data-end=\"1585\" data-col-size=\"md\"><strong data-start=\"1535\" data-end=\"1555\">Internal Control<\/strong><\/th>\n<th data-start=\"1585\" data-end=\"1636\" data-col-size=\"md\"><strong data-start=\"1587\" data-end=\"1619\">Audit Test for Effectiveness<\/strong><\/th>\n<\/tr>\n<\/thead>\n<tbody data-start=\"1799\" data-end=\"2465\">\n<tr data-start=\"1799\" data-end=\"1966\">\n<td data-start=\"1799\" data-end=\"1817\" data-col-size=\"sm\">Occurrence<\/td>\n<td data-start=\"1817\" data-end=\"1858\" data-col-size=\"sm\">Revenue recorded for undelivered goods<\/td>\n<td data-start=\"1858\" data-end=\"1913\" data-col-size=\"md\">System requires shipping confirmation before billing<\/td>\n<td data-start=\"1913\" data-end=\"1966\" data-col-size=\"md\">Inspect system logs for timestamped confirmations<\/td>\n<\/tr>\n<tr data-start=\"1969\" data-end=\"2133\">\n<td data-start=\"1969\" data-end=\"1987\" data-col-size=\"sm\">Accuracy<\/td>\n<td data-start=\"1987\" data-end=\"2028\" data-col-size=\"sm\">Invoice amounts incorrectly calculated<\/td>\n<td data-start=\"2028\" data-end=\"2082\" data-col-size=\"md\">System auto-calculates invoice based on sales order<\/td>\n<td data-start=\"2082\" data-end=\"2133\" data-col-size=\"md\">Reperform invoice calculation for sample items<\/td>\n<\/tr>\n<tr data-start=\"2136\" data-end=\"2302\">\n<td data-start=\"2136\" data-end=\"2154\" data-col-size=\"sm\">Authorization<\/td>\n<td data-start=\"2154\" data-end=\"2196\" data-col-size=\"sm\">Sales processed without credit approval<\/td>\n<td data-start=\"2196\" data-end=\"2251\" data-col-size=\"md\">Credit limit approval required for all new customers<\/td>\n<td data-start=\"2251\" data-end=\"2302\" data-col-size=\"md\">Inspect signed approvals in system\/records<\/td>\n<\/tr>\n<tr data-start=\"2305\" data-end=\"2465\">\n<td data-start=\"2305\" data-end=\"2323\" data-col-size=\"sm\">Completeness<\/td>\n<td data-start=\"2323\" data-end=\"2361\" data-col-size=\"sm\">Some shipments not invoiced<\/td>\n<td data-start=\"2361\" data-end=\"2414\" data-col-size=\"md\">System alerts for shipped-but-not-billed items<\/td>\n<td data-start=\"2414\" data-end=\"2465\" data-col-size=\"md\">Observe alert reports and follow-up procedures<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<div class=\"sticky end-(--thread-content-margin) h-0 self-end select-none\">\n<div class=\"absolute end-0 flex items-end\"><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/li>\n<li data-start=\"2467\" data-end=\"2684\">\n<p data-start=\"2469\" data-end=\"2684\">The auditor finds that although controls are well-designed, credit approvals are sometimes skipped during system downtime and handled manually without documentation. This reveals an operational <strong data-start=\"2663\" data-end=\"2683\">control weakness<\/strong>.<\/p>\n<\/li>\n<li data-start=\"2686\" data-end=\"2903\" data-is-last-node=\"\">\n<p data-start=\"2688\" data-end=\"2903\" data-is-last-node=\"\">By testing effectiveness, internal auditors ensure that internal controls are not only present but <strong data-start=\"2787\" data-end=\"2828\">functioning consistently and reliably<\/strong>, thereby reducing the risk of material misstatements in the revenue cycle.<\/p>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Once an internal auditor confirms that internal controls are adequately designed, the next step is to assess their effectiveness. This means determining whether the controls are functioning as intended, consistently applied, and performed by competent personnel. Auditors seek evidence that the control activities\u2014such as approvals, reconciliations, and segregation of duties\u2014are operating effectively over time. In [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":814,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[17],"tags":[],"class_list":["post-1185","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-internal-audit"],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/e.americanpro.org\/wp-content\/uploads\/2025\/06\/Galaxy-4.gif","_links":{"self":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts\/1185","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1185"}],"version-history":[{"count":1,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts\/1185\/revisions"}],"predecessor-version":[{"id":2132,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/posts\/1185\/revisions\/2132"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=\/wp\/v2\/media\/814"}],"wp:attachment":[{"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1185"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1185"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/e.americanpro.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1185"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}