A resolution-based approach to the validation of internal control systems

Internal control comprises the plan of organization and the methods adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherance to prescribed managerial policies. When an auditor is required to render an opinion on the validity of a system of internal control, a three stage process is usually performed. First, a model of the organization's system of internal control is developed and reviewed. If the model is found to be valid, tests for compliance with the model are performed. Finally, substantive audit tests are made to produce direct evidence about account balances. This work addresses the first of these processes. A description of the internal control system is generally obtained by interviewing knowledgeable managers in the organization and producing written descriptions and/or flowcharts of the system. These descriptions are then scrutinized by the auditor to find weaknesses in the system. For large scale operations, the magnitude of detail often overwhelms the auditor. The purpose of this paper is to describe a method for validating internal control systems which is implementable on a computer