Ch 9 AA

Question 1

Systems of ic

Answer 1

Ic systems are designed implemented and maintained by TCWG,mngmt, other personnel
It provides reasonable assurance about achievement of objectives about reliability of objectives about FR, compliance with laws and regulations, effectiveness and efficiency

Question 2

5 components of internal control system

Answer 2

1.control environment
2. Control activities: segregation of duties, physical controls
3. Information system and communication
4. Process to monitor ic system
5. Risk assessment process

Question 3

Internal control in smaller entity

Answer 3

2 key issues:
1. Less segregation of duties
2. Management override of controls
To compensate for these issues
1. Physical authorisation
2. Arithmetic
3. Accounting
4. Supervisory procedures
Because of this auditor usually use substantive procedures
1. Confirmations
2. Analytical procedures
3. Agreeing samples from financial statements to source documents

Question 4

Create ic
Postman hands you letter

Answer 4

Signature has to be taken

Question 5

Create ic
I submitted claim for expenses

Answer 5

Verify receipts submitted as evidence
Line manager should sign and authorise

Question 6

Create ic
Work an extra hour as overtime

Answer 6

Submit request for authorisation
Get authorisation from line manager

Question 7

I am in charge of cashbook and latest bank statement has been given

Answer 7

Reconcile bank statement and verify its conpleteness and accuracy

Question 8

Create ic
I received a monthly statement from monthly supplier

Answer 8

Agree supplier statement to purchase ledger balance

Question 9

Create ic
I am responsible for payroll processing and employee ask for deductions

Answer 9

Get a copy of letter signed by employee, verify authorisation from line manager
Hierarchical password needed to amend data

Question 10

Create ic
I returned from 3 month holiday and trying to log in

Answer 10

Password should have expired snd password change should be required

Question 11

Create ic
I am preparing to pay an invoice to supplier

Answer 11

Check if goods have been received with GRN.
Verify price, sales tax
Check if invoice has been added

Question 12

Create ic

I have prepared bank reconciliation for supervisor

Answer 12

Supervisor should review bank reconciliation
Check accuracy and completeness
Sign reconciliation

Question 13

Create ic

I am entering 75 sales invoices to accounts and check accuracy

Answer 13

Do batch reconciliation
Physical counts
Verify sales tax, revenue, receivable have increased by that amount
Do sequence check to see any invoices are omitted

Question 14

Create ic
I left the computer inactive for a period of time

Answer 14

Log out/lock your computer prior to leaving work
Computer should time out after a certain time
Password should be reentered

Question 15

Create ic
Till shop closing for the night

Answer 15

Cash collected should be counted and reconciled to till receipt
Cash should be kept in a safe

Question 16

Create ic
I work in a shop that sells diamond and inventory should be kept safe

Answer 16

Cctv camera
Doors shoukd be locked
Windows grilled
Night in security vault

Question 17

Inherent limitation of internal control system

Answer 17

1. Human errors
2. Cost of control > benefit
3. Management override
4. Unforeseen circumstances
5. Deliberate fraud

Question 18

How auditors can use internal control system

Answer 18

1. Check reliability
2. Types of potential misstatement
3. Factors of risk of mm
4. Design appropriate audit procedures

Question 19

Recording IC system

Answer 19

1. Flow chart
2. Narrative notes
3. ICQ(yes/no) ( focuses on strength of ic)
4. ICEQ( descriptive) (focuses on errors)

Question 20

IC in IT environment

Answer 20

It controls are the risk arising from IT. Divided into 2
1. General IT controls
2. Information processing comtrols

Question 21

General IT controls

Answer 21

1. Development of computer application
   -segregation of duties
   -controls over design, documentation
   -training of staff
   - test data
2. Prevention/ detection of unauthorised change to programs
   -restricted access
   -password processing
   - back ups
   - documentation of changes
3. Testing and documentation of program changes
   -training staff
   -documsnt standards
   -approval of change
4. Controls to prevent wrong files being used
   -job scheduling
   -controls over programs
5. Prevent unauthorised changes to data
   -password protection
   - restricted access
6. Controls to ensure continuity of operations
   -store extra copied
   -backups
   -disaster recovery procedures
   - maintenance agreement

Question 22

Information processing control

Answer 22

1. Controls over completeness
   - agreement of control totals
   -document counts
   -one for one checking
   -matching input to input control file
2. Controls over accuracy
   -digit verification
   -reasonableness tedt
   -existence check
   -permitted range
   -character check
   -Manual chrck of output and source
   - agreement of control totals
   Controls over authorisation
   -manual check of authorisation
   -input by authorised personnel
   Controls over processing
   -screen warning
   -batch reconciliation
   Controls over masterfile and standing data
   -controls over deletion of accounts with zero balance
   -record counts
   One for one checking