Internal controls are the backbone of a company. If companies have a robust internal control system, they can obtain better efficiency in their operations. Usually, these controls are a part of a company’s financial and risk management processes. Internal controls can help companies internally and externally. Usually, stakeholders are likely to trust companies with an efficient internal control system than those that don’t.
There are several parties in a company that is responsible for a company’s internal controls. The primary responsibility remains with the company’s management. However, a company’s audit committee and internal auditors also take part in the process. Since several parties take part in the process, this process needs a proper documentation system. One such document is the internal control questionnaire.
What is the Internal Control Questionnaire?
The internal control questionnaire (ICQ) includes questions that auditors can use to evaluate a company’s internal controls. This document helps auditors determine whether a company complies with the internal control system requirements standards. These standards usually come from the Committee of Sponsoring Organizations (COSO).
Therefore, an internal control questionnaire is a document that auditors can use to evaluate a company’s compliance with the COSO framework. However, it isn’t just a checklist of standards. ICQs are also helpful in identifying any compliance gaps. Once auditors establish these gaps, they will take the required corrective actions.
What is the Importance of the Internal Control Questionnaire?
Internal control questionnaires are helpful in internal documentation, specifically for internal auditors. However, they can also be crucial for external auditors. Using ICQs, external auditors can evaluate a client’s internal controls and whether they should rely on those controls. The primary source of information for the internal control questionnaire is enquiries and site visits.
The internal control questionnaire can also be important in several other aspects. Some of the reasons that exemplify the importance of internal control questionnaires are as below.
Provide Evidence
One of the most important aspects of using internal control questionnaires is that they provide evidence. As mentioned, ICQs are a part of a company’s internal control system documentation process. Therefore, they play a role in providing evidence of a company’s internal controls. For internal auditors, in particular, internal control questionnaires can a critical document for checking controls.
Internal control questionnaires are also crucial for external auditors. ICQs provide evidence of the external auditors’ checks of a client’s internal control systems. Similarly, these records can act as evidence for internal controls, documents or policies existing in a company. In short, ICQs are a critical document for auditors when evaluating a client’s internal control systems.
Act as Guidance
Internal control questionnaires act as guidance for auditors. As mentioned, these documents compare a company’s internal control systems with a standard. Through this comparison, it can help auditors get a better understanding of the controls to expect at a company. Auditors also go through a client’s processes before using the questionnaire. Therefore, they can look out for any deficiencies in them using ICQs.
On top of that, internal control questionnaires also act as guidance for future use. When conducting audits of a company’s internal controls, auditors can use previous ICQs to identify historical deficiencies. Using that information, they can focus on the areas that had weaknesses in the past. They can also use past ICQs as a standard document to perform future audits, which can further aid the process.
Promote Accountability
Internal control questionnaires are great tools for companies to promote accountability. ICQs assess the effectiveness of internal controls, for which a company’s management is responsible. Furthermore, ICQs evaluate whether each responsible person has performed their duties properly to enhance internal controls. Therefore, these documents can help establish accountability and responsibilities in a company.
Internal control questionnaires are also crucial in establishing how effectively a company’s management handles its duties. Therefore, ICQs can help auditors form an opinion on whether the board of directors take an active role in a company’s internal controls. For external auditors, it is also crucial as it defines the controls related to financial information.
Measure Efficiency
Internal control questionnaires are also critical in measuring the efficiency of a company’s internal controls. Most companies have the proper internal controls in place to prevent or detect and correct errors or misstatements. However, these controls are often not effective in identifying any irregularities. Through ICQs, auditors can establish whether the internal control systems work as intended.
Internal control questionnaires are also crucial in establishing employees’ efficiency. In most cases, internal controls may not work as intended because of the employees responsible for them. Therefore, auditors can also measure their efficiency in ensuring internal controls are effective. Based on this information, external auditors can also speculate whether the company’s financial information is reliable.
Conclusion
Internal control questionnaires are a part of a company’s documentation process for internal controls. These documents are critical for both internal and external auditors. There are several reasons why ICQs are important. These include providing evidence, acting as guidance, promoting accountability, and measuring efficiency.
