Chapter 4 - Systems and Internal Controls

Question 1

Risk, objective and procedure

Answer 1

Risk - what’s the risk eg.inventory missing
Objective - objective of the control eg. Make sure inventory is not missing
Procedure - test control eg. Padlocks, cctv

Question 2

5 components of internal control systems

Answer 2

1) control environment - management of the company
2) risk procedures - eg. Health and safety
3) info systems - form financial reporting functions
4) control activities- policies to meet objectives
5) monitoring controls - assessing controls operating properly.

Question 3

Walk through test

Answer 3

Checking presence of each controls. Strong and similar controls to previous years will need less substantive testing.

Question 4

Types of internal controls - SOAPMAPS

Answer 4

Supervision
Organisation
Accounting
Physical
Management 
Authorisation
Personnel
Segregation of duties

Question 5

2 types of controls

Answer 5

Preventative and detective of errors.

Question 6

Computer systems for accounting records should include..

Answer 6

Application controls - programmed controls over the data being processed

Info technology controls - security of the program eg. Password

Question 7

CAATS? Name categories they fall into

Answer 7

Computer assisted audit techniques

1) Audit software - helps you with the audit
2) Test data - replica of the clients software, then input data to see if the systems work?

Question 8

Advantages and disadvantages of CAATS

Answer 8

Advantages - speed of testing and calculations, efficient and tests the systems

Disadvantages - expensive, lack of skills, risk of corruption the clients systems

Question 9

Name the three main methods used to record the clients systems

Answer 9

Narrative notes
Flow charts
Checklists or questionnaires

Question 10

Two types of questionnaires and a positive and negative of both.

Answer 10

Internal control questionnaire- ask whether specific control is in place

• > quick to prepare
• > the client knows the auditor wants a yes answer

Internal control evaluations - what controls the client uses to eliminate a specific risk

• > quick to prepare
• > client may lie and say controls are present when they are not.

Question 11

Working papers and documentation

Answer 11

Working papers should be retained for 5 years
They should contain: client name, reporting date, reviewed by, prepared by.
Split into permanent files and current audit files