Internal Audit

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vaibhav falod (Querist)
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17 December 2010 I have done numerous statutory audits but this is my first internal audit. So I dont know the extra steps which should be taken on every particular area.
However, I am doing internal audit of a leasing company for the period 1/4/10 to 30/9/10. So i need to know what extra steps do i take to verify the rental income for the same.
Also, this company has changed its accounting package on 1st July 2010. So, half the entries are in one package & half the entries in other package. So, i have to perform an internal control system audit as well. So, how do I proceed for this?? can i have the checklist for this as well??

vaibhav falod

vaibhav falod (Querist)
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08 December 2015 its been 5 years! im still waiting for the reply!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 For internal auditing of a leasing company, particularly focusing on rental income and managing transitions between accounting packages, you'll need to approach the audit with attention to detail. Here’s a structured approach to guide you through the process:

### **1. Verifying Rental Income:**

#### **1.1 Understanding Rental Income:**
- **Lease Agreements:** Review the lease agreements to understand the terms, rent amounts, payment schedules, and other relevant clauses.
- **Income Recognition:** Ensure that rental income is recognized as per the terms of the lease agreements and accounting policies of the company.

#### **1.2 Verification Steps:**
- **Cross-Check Rent Receipts:** Verify the recorded rental income by cross-checking against bank statements, cash receipts, or rent receipts.
- **Reconcile Accounts:** Reconcile the rental income recorded in the general ledger with the rental income reported in financial statements.
- **Check Payment Records:** Verify that payments from tenants match the rental income entries. Ensure no discrepancies between expected and actual receipts.
- **Review Accruals and Deferrals:** Check if rental income is accrued or deferred as per accounting policies. Ensure accurate recognition in the correct accounting period.
- **Verify Contracts:** Confirm that rental income is in accordance with lease agreements, including any adjustments or rent increases specified in the contract.

#### **1.3 Analytical Review:**
- **Trend Analysis:** Perform a trend analysis of rental income over the audit period. Look for any unusual variations or deviations from expectations.

### **2. Internal Control System Audit:**

Given that the company has changed its accounting package midway through the year, you need to ensure proper handling of this transition.

#### **2.1 Assessment of Internal Controls:**
- **Review Transition Procedures:** Examine how the transition from the old accounting package to the new one was managed. Verify that data migration was completed accurately.
- **Test Data Integrity:** Check a sample of transactions to ensure data was correctly transferred from the old system to the new one.
- **Validate Access Controls:** Ensure that appropriate access controls are in place in the new system, and that user roles and permissions are correctly assigned.

#### **2.2 Internal Control Checklist:**
- **Documentation Review:**
- Check if documentation of the internal control procedures is up-to-date.
- Verify that the transition procedures are documented and followed.

- **System Controls:**
- **Access Control:** Confirm that user access controls are implemented correctly in both systems.
- **Data Integrity:** Ensure data integrity checks are in place and that data migration was accurate.
- **System Security:** Assess security settings in the new system to prevent unauthorized access.

- **Operational Controls:**
- **Transaction Logging:** Ensure transactions are logged correctly in both systems during the transition period.
- **Reconciliation Procedures:** Verify reconciliation procedures between the old and new systems for accuracy.
- **Error Handling:** Check how errors or issues during the transition were handled and resolved.

- **Management Review:**
- Confirm that management reviewed the transition and is satisfied with the process and results.

### **3. Checklist for Internal Control System Audit:**

#### **3.1 Pre-Audit Preparation:**
- **Understand Company Processes:** Gain a clear understanding of the company’s internal control systems and processes.
- **Obtain Documentation:** Collect all relevant documentation regarding internal controls, accounting policies, and procedures.

#### **3.2 Testing and Evaluation:**
- **Sample Transactions:** Test a sample of transactions in both the old and new systems.
- **Reconcile Records:** Reconcile records between old and new systems.
- **Review Policies:** Ensure policies and procedures are adhered to during the transition.

#### **3.3 Reporting:**
- **Identify Weaknesses:** Document any weaknesses or discrepancies found during the audit.
- **Recommendations:** Provide recommendations for improving internal controls and addressing any issues discovered.

By following these steps and using this checklist, you’ll be able to effectively audit the rental income and assess the internal control system of the leasing company. Ensure that you maintain thorough documentation of your audit procedures and findings for compliance and reporting purposes.

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