Definition
An Internal Control Questionnaire (ICQ) is a document used by auditors to systematically assess the internal control mechanisms of an organization. ICQs consist of a series of questions designed to evaluate different aspects of the internal control system relevant to specific operational cycles, such as the sales or revenue cycle. These questions help auditors pinpoint strengths and weaknesses in the internal control system, enabling them to predict potential errors or irregularities. Based on these predictions, auditors can design substantive tests to discover and quantify any inaccuracies.
Examples
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Sales or Revenue Cycle: Questions in the ICQ might assess whether sales are properly authorized, whether goods are correctly invoiced, whether the documentation supporting invoices is adequate, and whether payments are received in a timely manner.
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Procurement Cycle: For procurement, the ICQ might include questions about purchase order authorization, receipt and documentation of goods and services, and whether payments are made according to contractual terms.
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Payroll Cycle: This ICQ section may inquire about the authorization of new hires, the accuracy of timekeeping records, payroll preparation and approval processes, and the timely payment of wages.
Frequently Asked Questions
What is the purpose of an Internal Control Questionnaire (ICQ)?
The primary purpose of an ICQ is to help auditors assess the internal controls of an organization systematically. This assessment helps in identifying areas where controls are strong or weak, enabling better prediction and detection of potential errors or irregularities.
Who typically prepares the ICQ?
The ICQ is typically prepared by the audit team, who design the questionnaire to meet the specific needs of the audit and the organization being examined.
How does an ICQ identify strengths and weaknesses in internal control systems?
An ICQ identifies strengths and weaknesses by systematically evaluating different operational cycles and their control procedures against best practice standards. Positive responses often indicate robust controls, while negative responses can signal potential control weaknesses.
Can an ICQ be used for any industry?
Yes, ICQs can be customized to suit any industry. The content and focus of the questions will change depending on the specific operational cycles relevant to the industry in question.
How is the information from an ICQ used to design substantive tests?
The information from an ICQ is used to predict the types of errors or irregularities that might occur. Based on these predictions, auditors can design substantive tests aimed at detecting and quantifying such errors.
Related Terms
- Internal Control System: The array of policies and procedures employed by an organization to ensure the integrity of financial reporting, compliance with laws and regulations, and efficient and effective operations.
- Substantive Tests: Audit procedures that involve detailed checking of account balances, transactions, and disclosures to detect material misstatements in the financial statements.
Online References
Suggested Books for Further Studies
- “Internal Control Audit and Compliance: Documentation and Testing Under the New COSO Framework” by Lynford Graham
- “Auditing & Assurance Services: A Systematic Approach” by William F. Messier Jr., Steven M. Glover, and Douglas F. Prawitt
- “Audit and Assurance Essentials: For Professional Accountancy Exams” by Katharine Bagshaw
Accounting Basics: “Internal Control Questionnaire” Fundamentals Quiz
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