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Assurance > Chapter 5 Internal control > Flashcards

Chapter 5 Internal control Flashcards

1
Q

Which of the following applies to internal control?

  1. charged to governance and management
  2. provide full assurance of achievement of entity objectives
  3. control the directors and audtiors
  4. promotes stability of operations
A
  1. T
  2. F
    provides reasonable
  3. F
  4. F
    Promotes reliability of Fin reporting
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2
Q

Which role has which responibility for ‘quality control’, ‘credit control’, ‘control over inventory’, ‘compliance department’ and controls over payroll.

  1. Ensure eomployee paid correct.
  2. stock-outs prevention and minimal stock held
  3. limit bad debts
  4. implement policies ensure business adhere
  5. prevent poor quality
A
    • 5
    • 3
    • 2
  4. 4
  5. 1
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3
Q

For the three business risks listed below, list some controls which the
entity may implement to help minimise these risks.
 Non-payment by customers
 Producing damaged/poor quality products
 Paying too much for supplies

A

Non-payment by customers
 Credit checks on all new customers
 Credit limits set for all customers
 Regular review of balances against credit limits to ensure not breached
 Reducing/altering payment terms for poor payers.
Production of damaged/poor quality products
 Choose suppliers with good market reputation (approved supplier list)
 Regularly review level of returns/credit notes issued to determine
whether problem exists
 Instigate appropriate training techniques for production staff
 Implement adequate quality control procedures.
Paying too much for supplies
 Check taking advantage of any prompt payment/bulk discounts
 Compare all invoices received to goods received note (GRN) prior to
payment
 Marking paid invoices as such to avoid duplicate payments

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4
Q

What are the limitation of internal control?

A
  1. Human error
  2. unusual transactions
  3. collusion
  4. Special consideration in small companies
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5
Q

What are the internal controls in the annual report?

A
  1. Management responsibilities
  2. Principle of control design
  3. Inherent limitation
  4. management assessment
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6
Q

What are ICS components?

A 
A. Control environment 
B. risk Assessment process
C Information systems 
D. Control activities 
E. Monitoring
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7
Q

What does the control environment include?

A

Attitudes
awareness
actions

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8
Q

Which group of people indicate a strong control enviornment?

A
  1. Audit Committee
  2. Audit Function
  3. documents of control systems
  4. controls communicated to everyone
  5. no managment overrides possible.
  6. employees that work for one loyal as fuck
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9
Q

What are the Audit Committee?

A

Just below board of directors who have interest in Ac&Fi of the company

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10
Q

What are key feature of audit committee?

A
  1. non executive directors
  2. need for UK companies under uk corporate governance code
  3. required to have written terms of reference
  4. view over Finstat., internal audit and external audit
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11
Q

How does the risk assessment process follow through?

A
  1. identify relevant business risk
  2. Est. sig. of risk
  3. calc. likelyhood of occurence
  4. decide on actions to address the risk
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12
Q

What are three priorities in Tesco?

A
  1. Regaining competitiveness
  2. protecting the balance sheet
  3. rebuilding trust and transperency
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13
Q

Name 4 factors to assess principle risk ?

A
  • Customer proposition
  • Transformation of economic model.
  • People
  • Safety
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14
Q

What is the board responsible for the risk management?

A
  • engage directly
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15
Q

What s the Audit Committe responsible in terms of risk?

A
  • risk framework and controls for Board
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16
Q

What is Group Chief Executive and Committee responsibilities for risk?

A
  • accountable for control and risk man.

- indiv. reporting to GCE responsible for own

17
Q

Name 4 factors to assess priniciple risk?

A
  • Regulatory and reporting
  • Data and security and Data privacy
  • Technology
  • branch of the business
18
Q

Name 4 factors to assess priniciple risk?

A
  • Brand, Reputation and trust
  • Competition and markets
  • Liqudity
    safety
19
Q

What is relevant for the information systems?

A
  • The procedures and records to initiate
  • record
  • maintain accountability for BS main 3
20
Q

What are the auditors interested in for the information systems?

A
  • Identify sig. classes and transactions
  • systems for preparing FStat
  • Acc software used
21
Q

What are the auditors interested in for the information systems?

A
  • related Acc records

- Roles and responsibilities allocated to personnel

22
Q

What is the control activities achieved?

A

Manual or computerised procedures

23
Q

What are the 5 types of control activities?

A
  • Authorisation
  • Performance reviews
  • Information processing
  • Physical control
  • segregation of duties
  • computer controls
24
Q

What is the authorisation within control activities for internal review?

A

Ensuring only valid transaction

e.g timesheet overtime is valid

25
Q

WWhat is the ‘performance reviews’ within control activities for internal review?

A

identify unexpected items indicating error

e.g compare a chain of hotels

26
Q

What is the information processing within control activities for internal review?

A

Check completeness and accuracy of information

27
Q

What is the physical controls within control activities for internal review?

A

Restriction of access to assets or data

28
Q

What is the segregation of duties within control activities for internal review?

A

Different people different role, less risk

29
Q

What two types of computer controls are there for internal control review

A

General control

Application control

30
Q

What does the general control in computer control for internal control contain?

A

Policies and procedures to support function of application control (part of computer controls)

e. g. - controls over system
- test system
- staff training
- password protection
- virus checks

31
Q

What does the Application controls from computer controls for internal control contain?

A
  • manual/automated procedures apply to certain area of system
    e. g accuracy, validity, completeness
32
Q

What are the risk from cyber security in internal controls?

A
  • hacking
  • fraud
  • deliberate sabotage
  • denial of service attacks
  • improvement:
    1. communications of the risk
    2. Nominate one to responsibility
    3. assign board accountability
    4. monitor actions of people in cyber security
33
Q

What is the monitoring controls from the internal controls?

A

monitor continually for effectiveness

- internal audit recommend for new systems if weak

34
Q

What is the significance of internal controls to the external auditor?

A
  • Auditor enable control

- determine audit approach

35
Q

What are the documentation required from internal control to external auditor?

A
  • Narrative notes (simple to read)
  • Questionnaires or checklists (easy to complete)
  • Diagrams or flowcharts (for complex systems)

Assurance (33 decks)

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