Internal Control

Question 1

What are the 5 components of Internal Control?

Answer 1

Control Activities
Risk Assessment 
Information and Communication
Monitoring
control Environment

“CRIME”

Question 2

What factors comprise the Control Environment?

Answer 2

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”

Question 3

What are the main control activities?

Answer 3

Performance reviews
Information processing
Physical controls
Segregation of duties (“ARCC-S”)

“PIPS”

Question 4

What duties should be segregated?

Answer 4

Authorization
Recording
Reconciliation (Comparison)
Custody of assets

“ARRC-S” or “ARCC-S”

Question 5

What procedures does an auditor perform to obtain an understanding of internal control?

Answer 5

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”

Question 6

What are the main risk assessment procedures?

Answer 6

Analytical Procedures
Inquiries of Management
Inspection
Observation

“AIIO”

Question 7

What techniques are commonly used to document an auditor’s understanding of internal control?

Answer 7

Flowchart
Internal Control Questionnaire (ICQ)
Narrative or Memorandum
Decision table/tree

“FIND”

Question 8

What are the procedures for testing controls?

Answer 8

Reperformance
Inspection
Inquiry
Observation

“RIIO”

Question 9

What are the inherent limitations of internal control?

Answer 9

Collusion
Override by management
Competence (lack of)/human error
Obsolescence

“COCO”

Question 10

What types of control activities are most often included on an internal control questionnaire? What cycle does this most often relate to?

Answer 10

Physical Controls
Recording
Authorization
Independent Checks
Segregation of Duties
Evaluate Performance

“PRAISE”

**Most often pertains to Spending/Purchasing Cycle

Question 11

What’s a sales order?

Answer 11

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.

Question 12

What’s a bill of lading?

Answer 12

Shipping document signed by the carrier (trucker) accepting goods from the shipping clerk

Question 13

What’s a sales invoice?

Answer 13

Bill prepared and sent to customer after shipment to request payment.

Question 14

What’s a sales register (journal?)

Answer 14

Book in which sales information is posted

Question 15

What’s a subsidiary receivables ledger?

Answer 15

Book listing the outstanding receivables with a separate record for each customer (think A/R aging by customer)

Question 16

What’s a remittance advice?

Answer 16

Document included in an envelope with the check to indicate the purpose of the check

Question 17

What a remittance listing? Who prepares it?

Answer 17

Summary of the money received for a specific day that is prepared by the employee first receiving the cash (often a mail room clerk)

Question 18

What’s a purchase requisition?

Answer 18

Internal request by department in need of goods to be ordered by the purchasing department

Question 19

What’s a purchase order?

Answer 19

External form mailed to the vendor to request goods be delivered to the company

Question 20

What’s a receiving report?

Answer 20

Document prepared in receiving department and signed by carrier to acknowledge that goods have been delivered to the company

Question 21

What’s a purchase (vendor) invoice?

Answer 21

Document received from vendor indicating the goods the vendor claims to have shipped. Same as sales invoice from vendor’s perspective

Question 22

What’s an invoice register?

Answer 22

Listing of invoices received from vendors

Question 23

What’s a payment voucher?

Answer 23

Document prepared by payables clerk to request a check be issued for payment to a vendor

Question 24

What’s the purchase journal (voucher register)?

Answer 24

Book listing of all payment vouchers generated by the company

Question 25

What documents should be in agreement prior to preparing a sales invoice?

Answer 25

Both the sales order and bill of lading