9: Systems

Question 1

What are the internal controls systems?

Answer 1

The Systems at the Audit client

Question 2

What kind of risk does understanding the systems help with?

Answer 2

Control risk

Question 3

What 3 things do the auditor need to assess in the systems?

Answer 3

1 - System notes
2 - Components
3 - Activities / systems

Question 4

What are systems notes?

Answer 4

The auditor recording the systems the client has in place.

Question 5

What is the acronym for the components of successful systems?

Answer 5

CRIME

Question 6

What is the acronym for the activities /systems?

Answer 6

APIPS

Question 7

What do they test for when testing a control?

Answer 7

Whether it works

not how good it is.

Question 8

If the controls do not operate as expected then what do we do?

Answer 8

Report on the deficiencies

Question 9

What do we report with when we Report on the deficiencies?

Answer 9

Management weakness letter

Question 10

What do we include in a Management weakness letter

Answer 10

• Weakness
• Implication
• Recommendation

Question 11

What is the purpose and importance of internal controls at the client.

Answer 11

These help manage problems that could prevent the organisation from achieving its objectives.

Question 12

What does a narrative note do?

Answer 12

Describes and explains the system

Question 13

What’s the advantage of narrative notes? 1

Answer 13

-Simple to record

Question 14

What’s the disadvantage of narrative notes?

Answer 14

-Too cumbersome if system is complex

Question 15

What are the two types of questionnaire?

Answer 15

Internal control questionnaire

Internal control evaluation questionnaire

Question 16

What does an Internal control questionnaire do?

Answer 16

Assess whether controls exist

which meet specific objectives or prevent or detect errors and omissions.

Question 17

What does an Internal control evaluation questionnaire do?

Answer 17

Lists the objectives, and asks the client how they meet that objective.

Question 18

What’s the advantage of questionnaires? 4

Answer 18

• Quick to prepare
• Cost effective
• All controls are considered
• Simple to complete

Question 19

What’s the disadvantage of questionnaires? 2

Answer 19

• Can overstate the controls

- Can be too company specific

Question 20

What is a flow chart?

Answer 20

A pictorial of how the system works

Question 21

What’s the advantage of flow charts? 3

Answer 21

• Quick to prepare
• Easy to follow
• Eliminate need for details notes

Question 22

What’s the disadvantage of flow charts? 2

Answer 22

• Difficult to prepare unusual transactions in this way.

- Major amendments may require a complete re-draw

Question 23

How do we validate system notes? (Make sure auditor understands the systems)

Answer 23

• Walk through tests
• Observations
• Test data (CAAT’S)

Question 24

If the auditor is happy that the controls are working what do they still need to do?

Answer 24

Some restricted/reduced substantive testing

Question 25

If the auditor is happy that the controls are working why do they still test?

Answer 25

Because no controls are 100% effective

Question 26

What are the five components of good internal controls?

Answer 26

``` C - Control activities R-Risk assessment policies/procedures (directors perform) I-Information systems M-Monitoring E-Environment ```

Question 27

What are the three aspects of the environment?

Answer 27

Attitudes Actions Awareness of management

Question 28

What are the control activities relevant to the audit? APPIS

Answer 28

- Authorisation - Performance review - Information processing - Physical controls - Segregation of duties

Question 28

What do we mean by authorsation?

Answer 28

Things like timesheets and anything requiring approval by a manager

Question 29

What do we mean by performance reviews?

Answer 29

- Someone reviewing work | - Compare budget to actual

Question 30

What do we mean by information processing?

Answer 30

-Documents and how we capture information

Question 31

What do we mean by Physical controls?

Answer 31

Physical access to office | Clear desk policy

Question 32

What do we mean by Segregation of duties

Answer 32

Preparer and reviewer

Question 33

Describe application controls

Answer 33

Controls over specific application within s system

Question 34

Describe General controls

Answer 34

Controls over the computer environment

Question 35

Examples of Application controls

Answer 35

``` ✓ Document counts ✓ Sequence checks ✓ Arithmetic checks ✓ Range checks ✓ Batch reconciliations ```

Question 36

Examples of general controls

Answer 36

``` ✓ Systems networked ✓ Software update ✓ Software and hardware maintenance ✓ Passwords and restricted access ✓ Backup ```

Question 37

Describe risk assessment processes

Answer 37

How management identifies business risks relevant to the preparation of financial statements

Question 38

Describe Information system

Answer 38

The information system relevant to financial reporting objectives

Question 39

Describe monitoring

Answer 39

A process to assess the effectiveness of internal control performance over time. Usually the role of the internal auditor

Question 40

Describe Control environment

Answer 40

The governance and management functions (3 A's)

Question 41

What is the objective of a bank system? 3

Answer 41

✓ Cash is safeguarded ✓ Minimal cash held on site ✓ Payments for authorised business expenditure only

Question 42

What is the objective of a Revenue system? 4

Answer 42

``` ✓ Sales are made to valid customers ✓ Sales are recorded accurately ✓ All sales recorded ✓ Cash collected and allocated on a timely manner ```

Question 43

What is the objective of a Purchases system? 5

Answer 43

``` ✓ Orders are made for a valid purchase ✓ Cost effective ✓ Purchases are recorded accurately ✓ All purchases recorded ✓ Cash paid and allocated on a timely manner ```

Question 44

What is the objective of a wages system? 4

Answer 44

✓ Pay the right people ✓ The right wage rate ✓ Paid for hours worked ✓ Taxes calculated correctly

Question 45

What do we need to know for exam purposes?

Answer 45

The difference between 1 - Control objectives 2 - Controls 3 - Tests of controls