BY RICHARD H. GROSSE PARTNER, PITTSBURGH OFFICE
Presented at The Pennsylvania State University Account-ing Study Conference, University Park — August 1956
As you know, our discussion on Internal Control this morning is to be followed by a discussion this afternoon on Test-Checking and Sampling. This sequence was deliberately decided upon by the committee
in order to present a fully rounded picture on the interrelated subjects of internal control, audit programs, and test of transactions.
The committee has further suggested that our discussion on internal
control this morning be kept as broad as possible, spending a good bit of time on its definition and our responsibility with respect to the investigation of an internal-control system — both with respect to its design and functioning. In other words, we will try to draw a rather broad picture of just exactly what internal control is, and then this afternoon our discussions will be directed to the techniques of how we test the system of internal control and what actions are taken on the basis of sampling results.
I have been asked to include an explanation of the audit responsibility
with respect to the system of internal control and the sequencing of its examination. For example, is it really possible to write an audit program prior to the time an initial survey of internal control has been undertaken? What are the various methods used in appraising a system of internal control? Is it proper to use a checklist approach, or should a narrative outline of the internal-control system be made for the auditor's
permanent file? What differences or problems are involved in the examination of internal control as between a first engagement and subsequent engagements?
Perhaps the easiest way to handle such a broad subject as internal control is to segregate it into various areas by proposing a series of questions.
WHAT IS THE HISTORY IN THE DEVELOPMENT OF EMPHASIS ON INTERNAL CONTROL? The subject of internal control was discussed in financial literature
at least as early as 1900. However, time will not permit a thor-