ABC Limited is a medium-sized manufacturing company having multiple departments and large volume of transactions. The management claims that the…

Benefits of Evaluation of Internal Control to the Auditor: The review of internal controls will enable the auditor to know: (i) whether errors and frauds are likely to be located in the ordinary course of operations of the business (ii) whether an adequate internal control system is in use and operating as planned by the management (iii) whether an effective internal auditing department is operating (iv) whether any administrative control has a bearing on his work (for example, if the control over worker recruitment and enrolment is weak, there is a likelihood of dummy names being included in the wages sheet and this is relevant for the auditor) (v) whether the controls adequately safeguard the assets (vi) how far and how adequately the management is discharging its function in so far as correct recording of transactions is concerned (vii) how reliable the reports, records and the certificates to the management can be (viii) the extent and the depth of the examination that he needs to carry out in the different areas of accounting (ix) what would be appropriate audit technique and the audit procedure in the given circumstances (x) what are the areas where control is weak and where it is excessive and (xi) whether some worthwhile suggestions can be given to improve the control system. Thus, evaluation of internal control provides a sound basis for audit planning, helps the auditor assess control risk, and enables him to design appropriate audit procedures while also contributing to improvement of the control system.