Internal Control Flashcards
What are the 5 components of Internal Control?
Control Activities Risk Assessment Information and Communication Monitoring control Environment
“CRIME”
What factors comprise the Control Environment?
Commitment to Competence
HR policies and practices
Org Structure
Participation of those charged w/ Governance
Philosophy of mgmt. and mgt. operating style
Ethical values/integrity
Responsibility assignment (accountability)
“CHOPPER”
What are the main control activities?
Performance reviews
Information processing
Physical controls
Segregation of duties (“ARCC-S”)
“PIPS”
What duties should be segregated?
Authorization
Recording
Reconciliation (Comparison)
Custody of assets
“ARRC-S” or “ARCC-S”
What procedures does an auditor perform to obtain an understanding of internal control?
Understand design of IC/Perform risk assessment procedures
Document understanding of IC
Assess Risk of Material Misstatement (RMM)
perform Tests of Controls
Evaluate results/reassess RMM
Document conclusions/determine effect on planned substantive procedures
“UPDATED”
What are the main risk assessment procedures?
Analytical Procedures
Inquiries of Management
Inspection
Observation
“AIIO”
What techniques are commonly used to document an auditor’s understanding of internal control?
Flowchart
Internal Control Questionnaire (ICQ)
Narrative or Memorandum
Decision table/tree
“FIND”
What are the procedures for testing controls?
Reperformance
Inspection
Inquiry
Observation
“RIIO”
What are the inherent limitations of internal control?
Collusion
Override by management
Competence (lack of)/human error
Obsolescence
“COCO”
What types of control activities are most often included on an internal control questionnaire? What cycle does this most often relate to?
Physical Controls Recording Authorization Independent Checks Segregation of Duties Evaluate Performance
“PRAISE”
**Most often pertains to Spending/Purchasing Cycle
What’s a sales order?
List of goods ordered by a customer along with the prices to be charged. Will still be prepared even if customer has provided own purchase order, as internal sales orders will be prenumbered for accounting reconciliation.
What’s a bill of lading?
Shipping document signed by the carrier (trucker) accepting goods from the shipping clerk
What’s a sales invoice?
Bill prepared and sent to customer after shipment to request payment.
What’s a sales register (journal?)
Book in which sales information is posted
What’s a subsidiary receivables ledger?
Book listing the outstanding receivables with a separate record for each customer (think A/R aging by customer)
What’s a remittance advice?
Document included in an envelope with the check to indicate the purpose of the check
What a remittance listing? Who prepares it?
Summary of the money received for a specific day that is prepared by the employee first receiving the cash (often a mail room clerk)
What’s a purchase requisition?
Internal request by department in need of goods to be ordered by the purchasing department
What’s a purchase order?
External form mailed to the vendor to request goods be delivered to the company
What’s a receiving report?
Document prepared in receiving department and signed by carrier to acknowledge that goods have been delivered to the company
What’s a purchase (vendor) invoice?
Document received from vendor indicating the goods the vendor claims to have shipped. Same as sales invoice from vendor’s perspective
What’s an invoice register?
Listing of invoices received from vendors
What’s a payment voucher?
Document prepared by payables clerk to request a check be issued for payment to a vendor
What’s the purchase journal (voucher register)?
Book listing of all payment vouchers generated by the company
What documents should be in agreement prior to preparing a sales invoice?
Both the sales order and bill of lading
