AUD Deck 4-Internal Control-Transaction Cycles

Question 1

The framework SCARE is an acronym that is easy to remember & it is helpful in identifying relevant internal control considerations that are associated with “control activities” in the AICPA Professional Standards.

Answer 1

1) Segregation of Duties
2) Controls (physical controls)
3) Authorization
4) Reviews (performance reviews)
5) EDP/IT (Information processing)

Question 2

Segregation of Duties-Involves separating “incompatible functions” to the extent possible.

Answer 2

The same employee should not normally:

1) Authorize transactions (execution function)
2) Have access to the related assets (custody function)
3) Perform accounting activities (record keeping function) in the ordinary course of duties.

Question 3

EDP/IT-Information technology controls consist of 2 basic categories:

Answer 3

1) General Controls-which are policies & procedures that have widespread effect on many specific applications
2) Application controls-which refer specifically to the processing of particular computer applications.