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CMA Intermediate · Corporate Accounting and Auditing · Audit Risk, Internal Control, Internal Check and Internal Audit

A CMA firm auditing Kaveri Textiles Ltd prepares a flow chart of the purchase cycle. Which advantage is most directly associated with a flow chart compared with a narrative record?

A flow chart gives a concise visual picture of how documents move and where controls sit, so gaps such as a missing check or inadequate segregation of duties are easily spotted. It does not replace tests of controls, discussion with staff, or protect against collusion.

  1. AIt removes the need to test whether the controls actually operated during the year
  2. BIt gives a concise visual picture of the system, making gaps such as a missing check or missing segregation of duties easier to seeCorrect
  3. CIt guarantees that fraud by collusion among employees will be detected
  4. DIt eliminates the need to discuss the system with the client's staff

Explanation

A flow chart shows the flow of documents and the control points at a glance, so omissions such as no goods-received check stand out. It does not replace tests of controls, cannot guarantee detection of collusion, and is still prepared after enquiry and walk-through with client staff.

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