Chapter 5-11 Flashcards
What are the internal control components?
Control environment, risk assessment, info system, control activity, monitoring
The control environment relates to attitude, action and awareness of those charged with gov
What are control activities? Give examples
They are policies and procedures to help ensure directives are carried out, through preventative control and detective control
Examples include authorisation and approval, reconciliation, verification, physical and logical, segregation of duties (SPARV)
Give examples of control activities surrounding revenue system
Run a credit check
Examine goods and agree to sales order (make sure correct items are dispatched)
use authorised selling price (avoid loss of income)
Give examples of purchase system control activity
Purchase authorised by managers (only good quality purchased)
Examine good and agree to PO
Matched invoice details to GRN (ensure invoices received)
Match cash receipt to invoice (prevent MM)
Give a control activity of employment cost
Payroll reviewed by Manager
Checking wages to records and comparing payroll to budget
Segregation of duties (prevent payment to bogus employee)
What are working papers? What does ACA require from this?
The support conclusions drawn by assurance provider
Provide overall understanding of work done and evidence of compliance with laws
ACA require firm to document and keep for six years after accounting period
What are examples of substantive procedures?
AEIOU
Analyse, evaluate, inspect, observe re-calculate
What does testing for overstatement an understatement mean? How do you test estimates?
Overstatement- match figures in FS to physical asset
Understatement- match physical asset to FS
For estimates, you can break down calculation and use explanation. You can also bring an independent expert. Finally, you can check the effectiveness and accuracy of estimate at YE
Give examples of statistical sampling
Random selection- equal chance and picked from generator
Systematic selection - constant intervals between selected start point
Monetary unit sampling - every pound has equal chance
Give examples of non-statistical sampling*
Haphazard- select example, that will be representative
Block selection - selecting a block of item
What affects sample size and how?
Increase risk of MM- increase sample
Increase the level of assurance - increase sample
Increase tolerable mm- decrease sample
Stratification of population - decrease sample
Increasing number of sampling units - negligible effect
How does an auditor deal with Miss statement?
Communicate with management and request correction. If management refuse, written representation is needed to explain reasons.
What matters are material by nature?
Something that affects compliance with laws
Something that affects ratios used to evaluate FP
Increases management compensation
