4. Internal controls systems Flashcards
The process of preparing the financial statements is part of
a) Control environment
b) Information systems and communication
c) Control activity
b) Information systems and communication
Which of the four of the following statements about audit committees are correct?
a) At least 50% of members must be non-executive directors
b) Listed companies are required to have an audit committee
c) Audit committees are considered good practice for all large companies
d) If a company has an internal audit function, the chief internal auditor should sit on the audit committee
e) Audit committees are an important aspect of a company’s control environment
f) Audit committees are responsible for recommending the appointment of the external auditors
b, c, e & f
ALL members of an audit committee must be non-executive directors, not any members of internal audit team.
The external auditors are appointed by the shareholders, but the audit committee make recommendations to this
Which three of the following are aspects of an entity’s control environment?
a) The attitude of directors to internal controls
b) The attitude of staff to internal controls
c) The awareness of internal controls issues in the company
d) The actions of senior management in relation to internal controls
a, c & d
The attitude of ordinary staff does not shape the control environment
What type of control activity does the following example demonstrate?
The financial controller counts petty cash on a monthly basis
a) Authorisation and approval
b) Verification
c) Physical or logical control
c
Which three of the following would be the best sources of information about a company’s systems?
a) The company’s procedures manual
b) The internal audit function’s system notes
c) The prior year audit file
d) Inquiries made of company staff
e) The company’s website
a, b & d
Whilst the PY audit notes may be useful, the systems may have changed in the meantime
Management override of controls is more likely to take place in smaller companies, true or false?
True
Due to the dominance of management
For the following examples, select the component it demonstrates
Training programme for all staff
a) Control environment
b) Control activity
c) Monitoring internal controls
Review of actual performance against budget
d) Control environment
e) Control activity
f) Monitoring internal controls
Audit committee
g) Control environment
h) Control activity
i) Monitoring internal controls
a, e & i
Which of the following is not a general IT control?
a) Password protection limiting access to data
b) Disaster recovery procedures
c) Back-up copies of programs stored at a safe location
d) Procedures of resubmission of rejected data
d) Staff training in use of new programs
c
This is an information processing control
Which three of the following functions should be segregated?
a) Authorisation of transactions
b) Preparation of financial statements
c) Custody or handling of assets
d) Budgetary control
e) Recording transactions
a, c, e
The same person shouldn’t have custody of the assets acquired in a transaction
Select whether the following statements are true or false;
a) The UK Corporate Governance Code requires all listed companies in the UK to have an internal audit function
b) Internal audit focuses on the efficiency and effectiveness of a company’s operations by testing its internal controls
a) FALSE
The UK Corporate Governance Code does not require listed companies in the UK to have an internal audit function, but requires them to consider the need for one annually
b) FALSE
Internal audit use both testing of internal controls and substantive testing
Indicate whether the following is a strength or deficiency of the sales system
An order that is correctly recorded and checked against inventory generates a message to the distribution centre which despatches the goods and to the accounts department. An invoice is immediately sent to the customer
Deficiency
There is no link between dispatch (goods could be invoiced but not dispatched) and invoice or order and dispatch (goods could be ordered but not dispatched)
