The accounting system operates within a system of internal control. The accounting system is designed to ensure that every transaction is complete and accurately processed and recorded and that it is valid. The system of internal control is a collection of internal arrangements designed by the management to ensure that the accounting system achieves its objectives.


The auditor ascertains the system by asking questions of knowledgeable people within the organization. He can also ascertain a system by a study of the systems manual prepared by the client. He can also study the documents used in the organization and he can observe the procedures being performed.


The auditor must record the system that he has ascertained. This simply means putting it on paper. He can record the system in several ways:

1. Narrative notes: narrative notes are probably the most adaptable means of recording but they have the disadvantages that they can be cumbersome to use, they are difficult to interpret and review and they are awkward to change. It is also difficult to identify if any part of the system has been omitted plus of course the difficulty associated with reading other peoples illegible hand writing. This method is therefore appropriate to small businesses or to an overall record of systems in large companies

2. Use of internal control questionnaires: In our review of the various cycles we identified measures that an organization can take to prevent and detect errors and irregularities. These measures represent desirable controls than can exist in a system. Now internal control questionnaires are pre-printed documents asking specific questions about the existence of desirable controls in the system. The way they are framed is such that the questions can be answered in a `yes' and `no' manner. A `no' answer implying a weakness in control or a lack of control. `Yes' answers indicate a strength. Internal control questionnaires help to ensure that all basic control points are considered and in the context of control evaluation they can be extremely useful but they are not efficient as a means of recording an accounting system because just like narrative notes they can become very cluttered hence becoming difficult to interpret.

3. Flow-charts: a flow chart is a diagrammatic representation of the flow of documents through an accounting system with every check or control recorded on the lines of flow and segregation of duties highlighted. This method of recording ensures as far as possible the completeness of recording because a missed stage would result in a flow line simply stopping in the middle of a page. It eliminates the need for lengthy narrative, it is easy to understand and extract the salient points of control and any related weaknesses. In addition, if the format is standardised then assimilation is made easier. The method however does not facilitate the recording of physical, personnel, supervision or management controls which are usually best contained in narrative notes. A flow-chart is widely regarded as an important tool in the evaluation of systems. It is primarily designed to reveal the absence of essential accounting controls therefore time should not be spent on recording details which are irrelevant to this purpose. Preparing flow-charts is time consuming and for a professional firm expensive to prepare. Consideration must always therefore be given to their cost effectiveness. In most situations it is not appropriate to prepare flow-charts at all. All these techniques can be used at the same time and are therefore not mutually exclusive.