Ch 9 AA Flashcards
Systems of ic
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
5 components of internal control system
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
Internal control in smaller entity
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
Create ic
Postman hands you letter
Signature has to be taken
Create ic
I submitted claim for expenses
Verify receipts submitted as evidence
Line manager should sign and authorise
Create ic
Work an extra hour as overtime
Submit request for authorisation
Get authorisation from line manager
I am in charge of cashbook and latest bank statement has been given
Reconcile bank statement and verify its conpleteness and accuracy
Create ic
I received a monthly statement from monthly supplier
Agree supplier statement to purchase ledger balance
Create ic
I am responsible for payroll processing and employee ask for deductions
Get a copy of letter signed by employee, verify authorisation from line manager
Hierarchical password needed to amend data
Create ic
I returned from 3 month holiday and trying to log in
Password should have expired snd password change should be required
Create ic
I am preparing to pay an invoice to supplier
Check if goods have been received with GRN.
Verify price, sales tax
Check if invoice has been added
Create ic
I have prepared bank reconciliation for supervisor
Supervisor should review bank reconciliation
Check accuracy and completeness
Sign reconciliation
Create ic
I am entering 75 sales invoices to accounts and check accuracy
Do batch reconciliation
Physical counts
Verify sales tax, revenue, receivable have increased by that amount
Do sequence check to see any invoices are omitted
Create ic
I left the computer inactive for a period of time
Log out/lock your computer prior to leaving work
Computer should time out after a certain time
Password should be reentered
Create ic
Till shop closing for the night
Cash collected should be counted and reconciled to till receipt
Cash should be kept in a safe
Create ic
I work in a shop that sells diamond and inventory should be kept safe
Cctv camera
Doors shoukd be locked
Windows grilled
Night in security vault
Inherent limitation of internal control system
- Human errors
- Cost of control > benefit
- Management override
- Unforeseen circumstances
- Deliberate fraud
How auditors can use internal control system
- Check reliability
- Types of potential misstatement
- Factors of risk of mm
- Design appropriate audit procedures
Recording IC system
- Flow chart
- Narrative notes
- ICQ(yes/no) ( focuses on strength of ic)
- ICEQ( descriptive) (focuses on errors)
IC in IT environment
It controls are the risk arising from IT. Divided into 2
1. General IT controls
2. Information processing comtrols
General IT controls
- Development of computer application
-segregation of duties
-controls over design, documentation
-training of staff
- test data - Prevention/ detection of unauthorised change to programs
-restricted access
-password processing
- back ups
- documentation of changes - Testing and documentation of program changes
-training staff
-documsnt standards
-approval of change - Controls to prevent wrong files being used
-job scheduling
-controls over programs - Prevent unauthorised changes to data
-password protection
- restricted access - Controls to ensure continuity of operations
-store extra copied
-backups
-disaster recovery procedures
- maintenance agreement
Information processing control
- Controls over completeness
- agreement of control totals
-document counts
-one for one checking
-matching input to input control file - 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
