Auditing and Internal Control
BY WELDON POWELL PARTNER, EXECUTIVE OFFICE
Presented at the Sixth Annual Accounting Workshop of the Alabama Society of Certified Public Accountants, University, Alabama — October 1956
INTRODUCTION No other single factor is more important than internal control in shaping the design of the audit. It affects both the type and the amount of work that is done. An audit is largely custom-made, judgment concerning
the effectiveness of internal control being the principal feature of the pattern from which it is tailored. Unlike most other cases of design,
however, the audit is carried on as the pattern itself is being formed.
Improvements in recent years in systems-techniques and in ways of making the internal organization more effective has permitted the emphasis in auditing to shift importantly from verification of transactions
and balances to appraisal of internal control. The overriding purpose,
of course, has not changed. Ascertainment of the likelihood that the records can be relied upon to furnish a reasonable basis for a fair presentation in the financial statements when viewed as a whole, continues
to be the principal aim of the usual audit. The amount of work that auditors ordinarily do today in connection with cash, for example, is in part a carry-over from the period when detail checking was the main part of the audit. Verification of transactions and balances undoubtedly
will play a diminishing role as general understanding of the limits of the usual audit widens.
AUDITING STANDARDS RELATING TO SURVEY OF INTERNAL CONTROL
The significance of internal control in shaping the audit is recognized
in the literature. For example, the second standard of field work set forth in "Generally Accepted Auditing Standards," a special report by the Committee on Auditing Procedure of the American Institute of Accountants states, "There is to be a proper study and evaluation of the existing internal control as a basis for reliance thereon and for the de-termination of the resultant extent of the tests to which auditing proce-