Internal Control Section B (Direct control and tests of control) Flashcards

1
Q

Direct control for factory staff issued with swipe to enter and exist factory that’s monitored by security?

A

Ensures only genuine employees are only paid for work actually done. Stops fradulent activity

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2
Q

Tests of control for factory staff issued with swipe to enter and exist factory that’s monitored by security?

A

Observe use of clock cards by employees and confirm security staff are supervising the process

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3
Q

Direct control for payroll supervisor selects sample of payslips, recalculates gross to net pay calculations and compares to output from payroll system?

A

Reduces risk of automated system generating errors during payroll processing

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4
Q

Tests of control for payroll supervisor selects sample of payslips, recalculates gross to net pay calculations and compares to output from payroll system?

A

Review weekly payslips sampled by payroll supervisors for evidence of a signature to confirm calculations have been reviewed

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5
Q

Direct control for revised pay rates for factory are inputted by clerk into payroll system then checked by a senior clerk?

A

Reduces risk of input errors resulting in overpayment or underpayment

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6
Q

Tests of control for revised pay rates for factory are inputted by clerk into payroll system then checked by a senior clerk?

A

Obtain payroll listing for factory staff used for pay rate increase and review for evidence of signature for senior clerk

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7
Q

Direct control for pay packets paid by two members of stafff with one checking payslips and another one generating them?

A

Segragation of duties and reduces likelihood of errors or fraud by increasing pay packets

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8
Q

Tests of control for pay packets paid by two members of stafff with one checking payslips and another one generating them?

A

Observe preparation of pay packets ensuring one member generates using the system and one member checking is accurate

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9
Q

Tests of control for when no checks are performed on an automated system?

A

Review sample of weeks transferred from key card system for evidence for evidence they’ve been checked by senior official

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10
Q

Tests of control for when payroll clerk can edit payroll data without this being reviewed?

A

Sample of weekly edit reports, confirm these have been signed and reviewed by senior official

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11
Q

Tests of controls for when non-current register is not being physically verified on a frequent basis?

A

Review board minutes for evidence of new policy set by board regarding frequency of internal audit visits

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12
Q

Tests of control for when financial policy is adjusted so items only capitalised if they exceed £20000 (a significant change)

A

Review board minutes for evidence changes to accounting policies have been approved

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13
Q

Tests of control for finance director authorises monthly supplier payments but only views total amount of payments to be made?

A

Sample of payment listings should be reviewed to verify finance director has agreed amounts payable to supporting documentation

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14
Q

Tests of control for when there are no petty cash receipts?

A

Sample of petty cash transactions should be reviewed to ensure receipts have been provided for expenses

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15
Q

Tests of control for when bank reconciliations are done on a quarterly basis?

A

Review sample of bank reconciliation statements to ensure they have been completed and reviewed on a timely basis

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16
Q

Direct control for new sales system fully tested prior to implementation

A

Reduces risk of data being lost or not processed correctly if there are issued associated with operation of new system

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17
Q

Tests of control for new sales system fully tested prior to implementation

A

Audit team should review procedures and documentation relating to testing which has been udnertaken are appropriate

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18
Q

Direct control for when customers undergo a credit check?

A

Requiring a credit check reduces risk of lost revenue and uncollectable trade receivables

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19
Q

Tests of control for when customers undergo a credit check?

A

Select sample of new customer accounts opened in period and confirm that a credit check has been performed

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20
Q

Direct control for when receivables ledger performs a monthly review and identifies aged more than 30 days?

A

Credit control should ensure debts are collected on a timely basis reduces risk of irrecoverable debts

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21
Q

Tests of control for when receivables ledger performs a monthly review and identifies aged more than 30 days?

A

Obtain a copy of aged receivables report and confirm evidence of review

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22
Q

Direct control for when accounts clerk performs monthly trade receivables account reconciliation and resolves error on a timely basis

A

Regular reconciliation of trade receivables account helps ensure receivables balance in FS is presented accurately

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23
Q

Tests of control for when accounts clerk performs monthly trade receivables account reconciliation and resolves error on a timely basis

A

Audit team should review trade receivables reconciliations and confirm these are performed on a monthly basis

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24
Q

Direct control for sequence checks on a sequentially numbered key card carried out by HR supervisor?

A

Ensure payroll records are completem employees are paid for hours worked and all hours are recorded

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25
Q

Tests of controls for sequence checks on a sequentially numbered key card carried out by HR supervisor?

A

For sample of key cards recorded in clocking-in system, carry out sequence check to identify if there are any gaps in the sequence

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26
Q

Direct control for payroll clerk recalculating gross and net pay for the number of hours?

A

Reduces errors in the automated transfer during payroll processing

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27
Q

Tests of control for payroll clerk recalculating gross and net pay for the number of hours?

A

Review calculations that have been performed. Confirm with supervisor through evidence of signature, enquire about any anomalies

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28
Q

Direct control for password updated monthly using a random password generator?

A

Reduces risk of unauthorised access to sensitive information (e.g. payroll information)

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29
Q

Test of control for password updated monthly using a random password generator?

A

Attempt to login to payroll system using out-of-date password. Confirm system rejected access

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30
Q

Direct control for tax liability calculation by payroll who then passes it to FC for review?

A

Creates segragation of duties between payroll supervisor calculating liability and financial controller reviewing calculation

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31
Q

Test of control for tax liability calculation by payroll who then passes it to FC for review?

A

Review sample of calculations of monthly tax liabiltiy for evidence of review by FC

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32
Q

Direct control for when unique employee numbers are assigned to each employee by HR?

A

Reduces the risk of ficticious employees being set up by payroll

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33
Q

Tests of control for when unique employee numbers are assigned to each employee by HR?

A

Attempt to add new joiner to system without unique employee numbers, should reject this addition

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34
Q

Direct control for review of exception report of changes to payroll standing data?

A

Ensures unauthorised amendments to standing data are identified and investigated on a timely basis

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35
Q

Tests of control for review of exception report of changes to payroll standing data?

A

Select a sample of monthly exception reports and review for evidence of review, following up on any unexpected changes by payroll manager

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36
Q

Direct control for purchases orders up to £5000 are authorised by manager?

A

Ensures goods are only purchased which are business related

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37
Q

Tests of control for purchases orders up to £5000 are authorised by manager?

A

Select sample of purchase orders and review for evidence of authorisation within limits. Agree appropriate signature on approved signatures list

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38
Q

Direct control for goods received notes are received and checked?

A

Ensures company is not paying for goods it did not order

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39
Q

Tests of control for goods received notes are received and checked?

A

During interim audit observe warehouse department when receiving goods to understand level of checks being undertaken

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40
Q

Direct control for purchases invoices logged with control totals?

A

Control totals ensure both completeness and accuracy over input of purchase invoices

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41
Q

Tests of control for purchases invoices logged with control totals?

A

Select sample of control total sheets and review evidence of control totals being utilised by clerk’s signature

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42
Q

Direct control for finance director authorisation of bank transfer list and reviewing duplicate payments?

A

Reduces risk suppliers are paid the incorrect amount

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43
Q

Tests of control for finance director authorisation of bank transfer list and reviewing duplicate payments?

A

Review payments list for evidence of review by finance director

44
Q

Direct controls for asset classification checks?

A

Use of department guidelines by finance director should reduce risk of understated/overstated profits and incorrect depreciation charges

45
Q

Test of controls for asset classification checks?

A

Select sample of asset expenditure purchase orders and review evidence of classification being noted

46
Q

Direct controls for automated bnak reconciliation that’s reviewed by FC?

A

Monthly review and investigation ensures frauds and erriors are identified on a timely basis

47
Q

Test of controls for automated bnak reconciliation that’s reviewed by FC?

A

Review file of bank reconciliations to confirm a bank rec is included for each month and it has been reviewed by FC

48
Q

Test of controls for segragation of employee who does bank recs and also posts bank receipts and list of individual customers?

A

Review file of completed bank reconciliations to identify who prepared them

49
Q

Test of controls for when there are insufficient copies of GRN?

A

Review file of copy GRNs held by purchase ordering department and review evidence that GRNs are matched to orders

50
Q

Test of controls for when purchase ledger clerk only uses count controls for inputting invoices into purchases system?

A

Observe inputting of purchase invoices and identify what information processing controls are being used by clerk

51
Q

Test of controls for when inventory using out-of-date standard costs?

A

Obtain copy of standard costs used in inventory valuation, assess when review was last undertaken

52
Q

Test of controls for when overtime is not authorised?

A

Review overtime report for evidence of authorisation and ensure it was undertaken prior to payment of overtime

53
Q

Test of controls for when bank transfer is authorised?

A

Obtain a sample of payments lists and review for signature by fiannce director as evidence control is operating correctly

54
Q

Direct control for clock card information identifies employee number and links into hours worked report (automatic transfer of data)

A

Hours worked are automatically transferred into pauroll system, reduces risk of input errors for entering hours

55
Q

Tests of control for clock card information identifies employee number and links into hours worked report (automatic transfer of data)

A

Utilise test data procedures to input dummy clock card information, verify this is updated into payroll system

56
Q

Direct control for cash is received weekly from bank by a security company?

A

Important cash is adequately safeguarded to reduce risk of misappropriation

57
Q

Tests of control for cash is received weekly from bank by a security company?

A

Enquire payroll clerks how cash is delivered for weekly pay packets

58
Q

Tests of control for when there are no inter-branch transfers?

A

Discuss with store manager the process for ordering of inventory items, in particular if it is possible to order from other brances

59
Q

Tests of control for when GRNs aren’t sent to accounts department frequently?

A

Enquire accounts clerk as it frequency of when GRNs are received to assess if being sent properly

60
Q

Tests of control for when GRN is only sent to accounts department?

A

Review GRNs held by purchase ordering clerk and review evidence these are matched to orders and flagged as completed

61
Q

Tests of control for supplier statement reconciliation?

A

Review reconciliations ensure they are being performed on a regular basis and these are reviewed by responsible official

62
Q

Direct control for when sales invoices are prepared using an approved company price list?

A

Reduces risk of errors when raising invoices and ensuring accuracy of revenue

63
Q

Tests of control for when sales invoices are prepared using an approved company price list?

A

Obtain copy of current price list and for a sample of invoices, agree that correct prices have been used

64
Q

Direct control for when discounts must be requested by a sales manager and authorised by sales director?

A

Reduces risk of fraud which will result in misstatement of revenue

65
Q

Tests of control for when discounts must be requested by a sales manager and authorised by sales director?

A

Attempt to process an invoice with sales discount not authorised by director. System should reject this

66
Q

Direct control for when invoice is marked as paid and filed separately from invoices not yet paid?

A

Prevents invoices from being paid twice resulting in unnecessary cash outflow

67
Q

Tests of control for when invoice is marked as paid and filed separately from invoices not yet paid?

A

Inspect file of paid invoices and ensure kept separate from invoices not yet paid

68
Q

Direct control for when tills are closed and daily sales reading are reconciled to total of cash in tills?

A

Daily cashing up procedures reduces risk of misstatement within cash balance

69
Q

Tests of control for when tills are closed and daily sales reading are reconciled to total of cash in tills?

A

Auditor should review file of daily reconciliations to ascertain if end of day reconciliations have taken place

70
Q

Direct control for when cash collected by customer is taken to bank via collection by a security company?

A

Ensures cash is safeguarded and risk of theft when transferring to bank is minimised

71
Q

Tests of control for when cash collected by customer is taken to bank via collection by a security company?

A

Enquire staff how cash is transferred to bank. Sample of invoices from collection company should be reviewed and confirmed that charges made for daily collections

72
Q

Direct control for when checks on amounts banked and credit card receipts are credited to bank statements

A

Ensure completeness of cash receipts as they are transferred between security company and credit card company

73
Q

Tests of control for when checks on amounts banked and credit card receipts are credited to bank statements

A

Review daily reconciliations clerk has completed to confirm process is undertaken as described

74
Q

Tests of control for when clock in/out process not supervised

A

Observe clicking in and out process to ensure it is supervised by a responsible official

75
Q

Tests of control for when cemployee breaks not monitored

A

Observe dining area during break to ensure supervisor is present

76
Q

Tests of control for temporary staff appointed by factory supervisors?

A

Inspect HR procedures manual to ensure appointments of staff are responsible of HR department

77
Q

Tests of control for overtime authorised after payment made

A

Inspect overtime reports for evidence of a responsible individual;s signature authorising overtime prior to payment being processed

78
Q

Tests of control for production supervisors determine bonuses?

A

Inspect communication of bonuses to payroll department and ensure its sent by senior official

79
Q

Tests of control for no input checks on bonuses?

A

Observe payroll clerk inputting bonus amounts and then check against written confirmation

80
Q

Tests of control for payroll manager reviewing bank transfer and amending payroll records?

A

Inspect payroll bank transfer listing for authoriastion signature. Ensure signature is person outside payroll department

81
Q

Tests of control for payroll calciulations not checked?

A

Review a sample of gross to net pay calculations for evidence they are undertaken

82
Q

Tests of control for changes to standing data?

A

Ask clerk to attempt to make changes to payroll standing data, system should reject this

83
Q

Tests of control for authorisation of overtime?

A

Review sample of employee weekly overtime sheets for evidence of signature by department head

84
Q

Tests of control for no checks on time off taken?

A

Select sample of overtime sheets with time taken off and confirm evidence of check by payroll clerk

85
Q

Tests of control for review of overtime?

A

Sample of overtime reports emailed to department heads confirm if response received from each head by reviewing all responses

86
Q

Tests of control for payments list not checked

A

Obtain sample of payments list and review signature by finance director as evidence control is operating correctly

87
Q

Direct control for website has controls to check validity of data entered by customer

A

Reduces risk of orders being processed incorrectly. Ensures sales accuracy

88
Q

Tests of control for wensite has controls to check validity of data entered by customer

A

Input sales order into website with various incorrect details to check system rejects order

89
Q

Direct control for invoices raised from GDN. Ensures actual quantity and type of goods despatched rather than order may be different?

A

Reduces risk of customers being invoice incorrectly goods not received which will result in misstatement of revenue

90
Q

Tests of control for invoices raised from GDN. Ensures actual quantity and type of goods despatched rather than order may be different?

A

For sample of invoices, agree quantity and type of goods to GDN. Inspect GDN for evidfence of being matched to invoices

91
Q

Direct control for regular customer statements and follow up on overdue debts

A

Risk of irrecoverable debt is reduced

92
Q

Tests of control for regular customer statements and follow up on overdue debts

A

For a sample of customers inspect copies of monthly statements to confirm they are actually sent to customers and review evidence of phone calls on overdue debts

93
Q

Direct control for inventory levels checked on a regular basis to purchase of raw materials?

A

Reduces risk of inappropriate levels of stock being maintained, causing overstatement if not valued appropriately at lower of cost and NRV

94
Q

Tests control control for inventory levels checked on a regular basis to purchase of raw materials?

A

Observe weekly stock check process is being performed by the factorry supervisors

95
Q

Direct control for when requisitions are authorised by factory managers before being sent to procurement department

A

Ensures only necessary goods and services are procured

96
Q

Tests of controls for when requisitions are authorised by factory managers before being sent to procurement department

A

Inspect a sample of requisitions for evidence of authorisation

97
Q

Direct control for when approved supplier list

A

Gives assurance about the quality of goods and reliability of suppliers

98
Q

Direct control for pre-printed forms are completed by HR for all new employees, and includes assignment of a unique employee number, and once verified, a copy is sent to the payroll department.

A

The use of pre-printed forms ensures that all relevant information (e.g. tax IDs) is obtained about employees before set up. Minimises the risk of incorrect wage and tax payments

99
Q

Tests of control for pre-printed forms are completed by HR for all new employees, and includes assignment of a unique employee number, and once verified, a copy is sent to the payroll department.

A

Select a sample of new employees added to the payroll during the year; review the joiner forms for evidence of completion of all parts and that the information was verified as accurate

100
Q

Direct control for on a quarterly basis, exception reports of changes to payroll standing data are produced and reviewed by the payroll director?

A

This should ensure that any unauthorised amendments to standing data are identified and resolved on a timely basis.

101
Q

Tests of control for on a quarterly basis, exception reports of changes to payroll standing data are produced and reviewed by the payroll director?

A

Select a sample of quarterly exception reports and review for evidence of review and follow up of any unexpected changes by the payroll director

102
Q

Direct control for production employees paid in cash, cash is received weekly from the bank by a security company?

A

Likely the sum of money required to pay over 175 employees would be considerable

103
Q

Tests of control for production employees paid in cash, cash is received weekly from the bank by a security company?

A

Review a sample of invoices from the security company to Raspberry Co for delivery of cash

104
Q

Direct control for the status of a purchase order is marked as “complete” when goods received are accepted?

A

This reduces the risk that Swift Co could pay for goods that have not been received

105
Q

Tests of control for the status of a purchase order is marked as “complete” when goods received are accepted?

A

Review a sample of GRNs and confirm that the status of the corresponding order has been flagged as “complete”

106
Q

Direct control for purchase invoices are logged into the detailed purchases listing in batches, using control totals?

A

Control totals ensure both completeness and accuracy over the input of purchase invoices

107
Q

Tests of control for purchase invoices are logged into the detailed purchases listing in batches, using control totals?

A

Select a sample of control total sheets and review for evidence of control totals and the clerk’s signature.