Para 3.20.8 — MSO (Audit)
Original Rule Text
3.20.8 This requires a study of the departmental accounts manual, relevant orders, circulars, etc. including the prevailing policies and procedures. A flow chart may be prepared to depict various stages in the process. It may be examined to see whether:
(i) the accounts records provide for compilation of transactions according to the budgetary classification;
(ii) an effective method of budgetary control, including a machinery for the prompt reporting and analysis of variations between the budgetary allotments and expenditure, is available;
(iii) the accounting system provides for well designed documents and forms for control purposes as well as for conducting operations;
(iv) the accounting records maintained for resources and operations are informative, clear and generally adequate;
(v) controls exist to safeguard against errors and irregularities in operational and financial data; and
(vi) the accounting system is adequate, conforms to the generally accepted accounting principles and includes such forms and records as are absolutely necessary to ensure sound accounting and financial reporting.
- Examination of system of internal control
What This Means
This stage requires the auditor to study the departmental accounts manual, relevant orders, and accounting policies to understand the accounting system. A flow chart showing various stages of the accounting process should be prepared. The auditor examines six key aspects: whether accounts follow budgetary classification, whether effective budgetary control with variance reporting exists, whether documents and forms are well-designed, whether accounting records are clear and adequate, whether controls against errors exist, and whether the overall accounting system conforms to accepted principles.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Study the departmental accounts manual, orders, and prevailing policies
- 2Prepare a flow chart of the accounting process stages
- 3Accounts must be compiled according to budgetary classification
- 4There must be effective budgetary control with prompt reporting of variances
- 5Controls must exist to safeguard against errors and irregularities in financial data
- 6The accounting system must conform to generally accepted accounting principles
Practical Example
An auditor reviewing a department's accounting system discovers that expenditure is being booked under broad heads without the detailed sub-head classification required by the budget. This means the department cannot track whether specific allocations are being overspent or underspent. The auditor also finds no monthly mechanism for comparing actual expenditure against budget allotments, making effective budgetary control impossible.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What is budgetary classification?▼
Why is variance reporting important?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.