Evaluation can be approached from the ICQ point of view of trying to determine if desirable internal controls are present in a system and from the view of an ICEQ where we use key control questions to determine if specific errors or irregularities are possible. Let us look at both approaches:

ICQ: We have already met this document which is just a list of questions that typically ask whether certain controls are performed and if so, when, how and by whom. The ICQ is usually formulated such that there is one covering each of the areas discussed under accounting cycles. An example of an ICQ on the purchasing cycle is appended as an appendix to this chapter. ICQ facilitate the orderly valuation of the internal control. They eliminate the possibility of matters being overlooked and they provide a basis for the manager/partner reviews of the opinions reached by the staff in the field. They provide audit evidence of the basis of audit conclusions in the event that the auditor's judgement is subsequently challenged. Their major failings are: they concentrate on the controls themselves rather than the error or irregularity that the controls are designed to prevent or detect. It is also generally considered that these ICQ's can become too complex and cluttered for meaningful evaluation and that in large and complex organizations systems information is best recorded in the form of flow-charts or systems. It is essential that the audit is conducted in a searching and enquiring manner, always bearing in mind the types of problems that may arise. With ICQs it is very easy to forget the significance behind every question and for this reason much of their value is lost and most major firms now adopt the internal control evaluation questionnaire approach.

ICEQs: ICEQs are characterised by the use of the key control questions covering the accounting cycles dealt with earlier which are then backed up by backup questions. Where the system has been recorded by the use of narrative notes or flow-charts weaknesses are not easily apparent as was the case when the ICQ was used. The ICQ is a comprehensive, all inclusive method of ascertaining, recording and evaluating a system of control but where as we have seen the system is recorded in the other two methods then we have need for another document for us to be able to evaluate the strengths and weaknesses of the system. The likelihood of defalcation can be evaluated by determining whether the segregation of duties is satisfactory. The possibility of error can be considered by looking at the checks present in the system in the light of the various types of error possible. The possibility of distortion normally by senior officials cannot be readily determined by questionnaire but may be revealed during the course of evaluation procedures by looking out for signs that the management are under pressure.