Every company has an internal control system that helps it in risk management. Internal controls have several purposes, including protecting assets, preventing frauds, ensuring the integrity of financial and accounting systems, promoting accountability, etc. Some companies assume internal controls are futile and costly. However, they can also improve a company’s operational efficiency and effectiveness.
Like any other system, internal controls also needed policies and other mechanisms to function properly. Similarly, it is essential for companies to document their internal control systems. There are several tools that companies may use for this purpose. For example, they can use internal controls questionnaires (ICQ) or internal controls evaluation questionnaires (ICEQ).
What is Internal Control Evaluation Questionnaire?
Internal control evaluation questionnaires (ICEQs) are a tool that companies use to document the internal control systems in place. In most circumstances, internal auditors use ICEQs as a method of evaluating the company’s internal controls. They may use it as a part of their risk assessment process. Similarly, ICEQs can be a part of the test of controls that auditors perform.
Internal control evaluation questionnaires allow auditors to evaluate the effectiveness of a company’s internal controls. They can use it to check whether the existing controls operate effectively or not. In other words, ICEQs help auditors understand whether the present controls can detect or prevent and correct material misstatements. For financial systems, ICEQs check the internal control system’s effectiveness at the assertion level.
How Do Internal Control Evaluation Questionnaires Work?
Internal control evaluation questionnaires include a list of questions. Through these, auditors can evaluate whether a company’s internal control systems are effective. These are usually helpful in appraising the operating effectiveness of the internal control system. For each area, these questions may differ to cover the specific needs of auditors and their engagement.
Once auditors use ICEQs to evaluate the internal control systems, they will reach a conclusion. Through ICEQs, auditors can conclude whether the internal control system is operating effectively in accordance with the standards. Based on this conclusion, auditors can make a decision whether the company’s internal controls are effective or deficient.
However, ICEQs require auditors to have an understanding of the company’s internal control systems. Auditors can develop ICEQs after assessing a company’s risk of a material misstatement by understanding its nature and operations. For that, auditors can use walkthrough tests or enquiries. That way, they can develop an understanding of the company’s internal controls.
Once auditors establish the risk levels and internal control systems, they can evaluate the internal control systems. ICEQs does not detect whether a company has the necessary internal controls necessary. Instead, it assesses the existing systems. It helps auditors understand whether the systems at place work as intended. Therefore, controls need to exist for auditors to evaluate them using ICEQs.
Internal Control Questionnaires (ICQs) Vs Internal Control Evaluation Questionnaires (ICEQs)
Internal control questionnaires and internal control evaluation questionnaires may sound similar. However, they are different from each other. Internal control evaluation questionnaires help auditors evaluate a company’s existing controls. As mentioned above, auditors use these once they understand a company’s internal control systems.
On the other hand, internal control questionnaires help auditors evaluate whether internal controls exist or not. Therefore, ICQs are helpful in detecting areas where a company lacks the necessary internal controls. ICQs allow auditors to assess the design of the internal control system. If controls do not exist where the auditor deems necessary, the internal control systems are deficient.
Auditors also need to understand a company’s internal control systems before using internal control questionnaires. However, auditors may use ICQs before ICEQs to establish areas where controls do no exist. Once auditors use ICQs to determine where control exists, they can use ICEQs to check their effectiveness. Overall, both ICQs and ICEQs are crucial to document and evaluate a company’s internal control systems.
What are the Advantages and Disadvantages of Internal Control Evaluation Questionnaires?
There are several advantages and disadvantages to internal control evaluation questionnaires. The benefits of ICEQs are as below.
- ICEQs help auditors evaluate the effectiveness of internal control systems.
- ICEQs allow auditors to assess whether internal controls work as intended.
- ICEQs help auditors form an opinion on whether a client’s internal control system is reliable.
- Through ICEQs, auditors can identify control weaknesses and make recommendations to the company’s management.
- ICEQs are relatively easy to understand and use.
- Overall, internal control evaluation questionnaires allow auditors to document a company’s internal control systems.
The disadvantages of internal control questionnaires include the following.
- ICEQs can be tedious to form.
- ICEQs can be time-consuming for auditors to use.
- ICEQs depend on enquiries, and the management may overstate their controls.
- ICEQs use a standard list of questions, which can not help evaluate unusual controls.
Conclusion
There are several tools that auditors can use to evaluate a company’s internal control systems. One of these includes internal control evaluation questionnaires. ICEQs help auditors identify weaknesses in a company’s existing internal controls. However, they are different from internal control questionnaires. There are several advantages and disadvantages of internal control evaluation questionnaires, as mentioned above.
