I.C : Inventory cycle / NCA/ General and Program controls

Question 1

Controls procedures to perform before inventory count:

Answer 1

1. To review previous year audit file to identify an issues related inventory and enquire about it with mgmt. to know have they been resolved yet or not.
2. To obtain a copy of stock count instructions and review it for any discrepancies
3. Compare the current year stock count instructions with the prior year stock count instruction to identify any inconsistencies and investigate them further with mgmt.
4. Enquire with mgmt. if any inventory is held in 3rd party locations or not.
5. If they have kept inventory in 3rd party location then obtain an approximate value of that inventory and allocate some audit staff to attend the count in those locations.

Question 2

Controls procedures to perform during the inventory count:

Answer 2

1. Ensure the stock areas are laid out well and have been marked with unique codes to distinguish each area.
2. Ensure stock count instructions and stock count sheets are pre-printed and sequentially pre-numbered with only items mentioned in sheets and not the qty.
3. Ensure stock count sheets are filled in pen to prevent unauthorised changes from being made to the sheets after the count
4. Ensure inventory count is performed in team of two. Where at least one member should not be from the warehouse dept.and the count supervisor should not be from the warehouse dept.
5. The teams of 2 should not count separate inventory and oone of them should recount the inventory that has been counted.
6. Any damaged or obsolete inventory found during the count should be kept separately from the good inventory to avoid selling it.
7. The inventory counts should be signed off properly to identify who has done the first count and the second count so that any questions could be directed to them.
8. Once each area has been completed then it should marked as completed to avoid miscounting or doublecounting.

Question 3

Controls procedures to perform after the inventory count:

Answer 3

• Auditors should perform random inventory counts on a sample basis to the trace the results to the results of the inventory count team to ensure that results are matching.
• Review any records for damaged or obsolete inventory identified during the count to ensure it is being handled appropriately.
• To fill/record the results as soon as the count is completed

Question 4

Controls procedures to perform for non-current assets:

Answer 4

• The sale or purchase of an NCA should be authorised by senior mgmt. personnel.
• Mgmt. should review the existence of NCAs on a regular basis.
• NCA register should contain details of the NCA such as invoice deets, location and value
• Documents confirming legal ownership of the NCA must be stored safely in a fireproof environment.

Question 5

General controls

Answer 5

• userame and password log in for all computers
• installing anti-virus software and firewalls in all computers
• Review of data center should ensure adequate air-conditioning facilities and uninterruptible power supplies and smoke detectors are present
• Having IT dept and helpdesk and providing extra IT training to employees
• keeping computers in locked rooms
• HAVING A RECOVERY PLAN
• DOING REGULAR BACKUP OF INFO AND STORING INFO OFFSITE

Question 6

Application controls

Answer 6

• Controls which are specific to a given application or particular transaction.
• Their aim is to ensure completeness and accuracy of records and validity of entries made in those records

Question 7

Types of application controls

Answer 7

1. Format checks
2. Compatible checks/ dependency checks
3. range check / reasonableness check
4. sequence check
5. check digits verification
6. one for one checking
7. document check
8. control totals or batch check
9. existence check
10. exception check

Question 8

Format check

Answer 8

To ensure input data is entered in the correct form.

Question 9

Range check / reasonableness check

Answer 9

-Input data is highlighted or rejected if it is outside the range or pre-set parameters.

Question 10

Dependency check/compatible check

Answer 10

• To ensure input data from 2 or more fields is compatible.

Question 11

Sequence check

Answer 11

• To ensure sequential input of data / documentation is maintained.

Question 12

Exception check

Answer 12

• This highlights unusual circumstances arising from the input of a specific item.

Question 13

Check digit verification

Answer 13

-It is checking digits to protect against transposition of digits; which is an error caused by accidental reversal of digits.

Question 14

One for one checking

Answer 14

-Where each of the invoices are entered into the system by manually agreeing them one by one to the original purchase invoices.

Question 15

Existence check

Answer 15

-certain key data needs to be present or exist in the form for the transaction to be processed.

Question 16

Control totals/batch controls

Answer 16

-Pre input, manually prepared control totals are compared to the control total input

Question 17

Document checks

Answer 17

-Where the no. of invoices is counted prior to being input into the system, then at the end the number of invoices input is checked against the document count.