Internal Control Section B (Direct control and tests of control) Flashcards
Direct control for factory staff issued with swipe to enter and exist factory that’s monitored by security?
Ensures only genuine employees are only paid for work actually done. Stops fradulent activity
Tests of control for factory staff issued with swipe to enter and exist factory that’s monitored by security?
Observe use of clock cards by employees and confirm security staff are supervising the process
Direct control for payroll supervisor selects sample of payslips, recalculates gross to net pay calculations and compares to output from payroll system?
Reduces risk of automated system generating errors during payroll processing
Tests of control for payroll supervisor selects sample of payslips, recalculates gross to net pay calculations and compares to output from payroll system?
Review weekly payslips sampled by payroll supervisors for evidence of a signature to confirm calculations have been reviewed
Direct control for revised pay rates for factory are inputted by clerk into payroll system then checked by a senior clerk?
Reduces risk of input errors resulting in overpayment or underpayment
Tests of control for revised pay rates for factory are inputted by clerk into payroll system then checked by a senior clerk?
Obtain payroll listing for factory staff used for pay rate increase and review for evidence of signature for senior clerk
Direct control for pay packets paid by two members of stafff with one checking payslips and another one generating them?
Segragation of duties and reduces likelihood of errors or fraud by increasing pay packets
Tests of control for pay packets paid by two members of stafff with one checking payslips and another one generating them?
inspect the weekly payroll listing for evidence of signature by two members of staff involved in the preparation of the pay packets
Tests of control for when no checks are performed on an automated key card system?
Review sample of weeks transferred from key card system for evidence for evidence they’ve been checked by senior official
Tests of control for when payroll clerk can edit payroll data without this being reviewed?
Sample of weekly edit reports, confirm these have been signed and reviewed by senior official
Tests of controls for when non-current register is not being physically verified on a frequent basis?
Review board minutes for evidence of new policy set by board regarding frequency of internal audit visits
Tests of control for when financial policy is adjusted so items only capitalised if they exceed £20000 (a significant change)
Review board minutes for evidence changes to accounting policies have been approved
Tests of control for finance director authorises monthly supplier payments but only views total amount of payments to be made?
Sample of payment listings should be reviewed to verify finance director has agreed amounts payable to supporting documentation
Tests of control for when there are no petty cash receipts?
Sample of petty cash transactions should be reviewed to ensure receipts have been provided for expenses
Tests of control for when bank reconciliations are done on a quarterly basis?
Review sample of bank reconciliation statements to ensure they have been completed and reviewed on a timely basis
Direct control for new sales system fully tested prior to implementation
Reduces risk of data being lost or not processed correctly if there are issued associated with operation of new system
Tests of control for new sales system fully tested prior to implementation
Audit team should review procedures and documentation relating to testing which has been udnertaken are appropriate
Direct control for when customers undergo a credit check?
Requiring a credit check reduces risk of lost revenue and uncollectable trade receivables
Tests of control for when customers undergo a credit check?
Select sample of new customer accounts opened in period and confirm that a credit check has been performed
Direct control for when receivables ledger performs a monthly review and identifies aged more than 30 days?
Credit control should ensure debts are collected on a timely basis reduces risk of irrecoverable debts
Tests of control for when receivables ledger performs a monthly review and identifies aged more than 30 days?
Obtain a copy of aged receivables report and confirm evidence of review
Direct control for when accounts clerk performs monthly trade receivables account reconciliation and resolves error on a timely basis
Regular reconciliation of trade receivables account helps ensure receivables balance in FS is presented accurately
Tests of control for when accounts clerk performs monthly trade receivables account reconciliation and resolves error on a timely basis
Audit team should review trade receivables reconciliations and confirm these are performed on a monthly basis
Direct control for sequence checks on a sequentially numbered key card carried out by HR supervisor?
Ensure payroll records are completem employees are paid for hours worked and all hours are recorded
Tests of controls for sequence checks on a sequentially numbered key card carried out by HR supervisor?
For sample of key cards recorded in clocking-in system, carry out sequence check to identify if there are any gaps in the sequence
Direct control for payroll clerk recalculating gross and net pay for the number of hours?
Reduces errors in the automated transfer during payroll processing
Tests of control for payroll clerk recalculating gross and net pay for the number of hours?
Review calculations that have been performed. Confirm with supervisor through evidence of signature, enquire about any anomalies
Direct control for password updated monthly using a random password generator?
Reduces risk of unauthorised access to sensitive information (e.g. payroll information)
Test of control for password updated monthly using a random password generator?
Attempt to login to payroll system using out-of-date password. Confirm system rejected access
Direct control for tax liability calculation by payroll who then passes it to FC for review?
Creates segragation of duties between payroll supervisor calculating liability and financial controller reviewing calculation
Test of control for tax liability calculation by payroll who then passes it to FC for review?
Review sample of calculations of monthly tax liabiltiy for evidence of review by FC
Direct control for when unique employee numbers are assigned to each employee by HR?
Reduces the risk of ficticious employees being set up by payroll
Tests of control for when unique employee numbers are assigned to each employee by HR?
Attempt to add new joiner to system without unique employee numbers, should reject this addition
Direct control for review of exception report of changes to payroll standing data?
Ensures unauthorised amendments to standing data are identified and investigated on a timely basis
Tests of control for review of exception report of changes to payroll standing data?
Select a sample of monthly exception reports and review for evidence of review, following up on any unexpected changes by payroll manager
Direct control for purchases orders up to £5000 are authorised by manager?
Ensures goods are only purchased which are business related
Tests of control for purchases orders up to £5000 are authorised by manager?
Select sample of purchase orders and review for evidence of authorisation within limits. Agree appropriate signature on approved signatures list
Direct control for goods received notes are received and checked?
Ensures company is not paying for goods it did not order
Tests of control for goods received notes are received and checked?
Review a sample of GRNs held in the warehouse department for signature, as evidence of checks being undertaken on receipt of goods
Direct control for purchases invoices logged with control totals?
Control totals ensure both completeness and accuracy over input of purchase invoices
Tests of control for purchases invoices logged with control totals?
Select sample of control total sheets and review evidence of control totals being utilised by clerk’s signature
Direct control for finance director authorisation of bank transfer list and reviewing duplicate payments?
Reduces risk suppliers are paid the incorrect amount
Tests of control for finance director authorisation of bank transfer list and reviewing duplicate payments?
Review payments list for evidence of review by finance director
Direct controls for asset classification checks?
Use of department guidelines by finance director should reduce risk of understated/overstated profits and incorrect depreciation charges
Test of controls for asset classification checks?
Select sample of asset expenditure purchase orders and review evidence of classification being noted
Direct controls for automated bnak reconciliation that’s reviewed by FC?
Monthly review and investigation ensures frauds and erriors are identified on a timely basis
Test of controls for automated bnak reconciliation that’s reviewed by FC?
Review file of bank reconciliations to confirm a bank rec is included for each month and it has been reviewed by FC
Test of controls for segragation of employee who does bank recs and also posts bank receipts and list of individual customers?
Review file of completed bank reconciliations to identify who prepared them
Test of controls for when there are insufficient copies of GRN?
Review file of copy GRNs held by purchase ordering department and review evidence that GRNs are matched to orders
Test of controls for when purchase ledger clerk only uses count controls for inputting invoices into purchases system?
The audit team should utilise test data procedures to assess whether data can be entered without the use of batch control totals
Test of controls for when inventory using out-of-date standard costs?
Obtain copy of standard costs used in inventory valuation, assess when review was last undertaken
Test of controls for when overtime is not authorised?
Review overtime report for evidence of authorisation and ensure it was undertaken prior to payment of overtime
Test of controls for when bank transfer is authorised?
Obtain a sample of payments lists and review for signature by fiannce director as evidence control is operating correctly
Direct control for clock card information identifies employee number and links into hours worked report (automatic transfer of data)
Hours worked are automatically transferred into pauroll system, reduces risk of input errors for entering hours
Tests of control for clock card information identifies employee number and links into hours worked report
Utilise test data procedures to input dummy clock card information, verify this is updated into payroll system
Direct control for cash is received weekly from bank by a security company?
Important cash is adequately safeguarded to reduce risk of misappropriation
Tests of control for cash is received weekly from bank by a security company?
Enquire payroll clerks how cash is delivered for weekly pay packets
Tests of control for when there are no inter-branch transfers?
Enquire with store manager the process for ordering of inventory items, in particular if it is possible to order from other brances
Tests of control for when GRNs aren’t sent to accounts department frequently?
Enquire accounts clerk as it frequency of when GRNs are received to assess if being sent properly
Tests of control for when GRN is only sent to accounts department?
Review GRNs held by purchase ordering clerk and review evidence these are matched to orders and flagged as completed
Tests of control for supplier statement reconciliation?
Review reconciliations ensure they are being performed on a regular basis and these are reviewed by responsible official
Direct control for when sales invoices are prepared using an approved company price list?
Reduces risk of errors when raising invoices and ensuring accuracy of revenue
Tests of control for when sales invoices are prepared using an approved company price list?
Obtain copy of current price list and for a sample of invoices, agree that correct prices have been used
Direct control for when discounts must be requested by a sales manager and authorised by sales director?
Reduces risk of fraud which will result in misstatement of revenue
Tests of control for when discounts must be requested by a sales manager and authorised by sales director?
Attempt to process an invoice with sales discount not authorised by director. System should reject this
Direct control for when invoice is marked as paid and filed separately from invoices not yet paid?
Prevents invoices from being paid twice resulting in unnecessary cash outflow
Tests of control for when invoice is marked as paid and filed separately from invoices not yet paid?
Inspect file of paid invoices and ensure kept separate from invoices not yet paid
Direct control for when tills are closed and daily sales reading are reconciled to total of cash in tills?
Daily cashing up procedures reduces risk of misstatement within cash balance
Tests of control for when tills are closed and daily sales reading are reconciled to total of cash in tills?
Auditor should review file of daily reconciliations to ascertain if end of day reconciliations have taken place
Direct control for when cash collected by customer is taken to bank via collection by a security company?
Ensures cash is safeguarded and risk of theft when transferring to bank is minimised
Tests of control for when cash collected by customer is taken to bank via collection by a security company?
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
Direct control for when checks on amounts banked and credit card receipts are credited to bank statements
Ensure completeness of cash receipts as they are transferred between security company and credit card company
Tests of control for when checks on amounts banked and credit card receipts are credited to bank statements
Review daily reconciliations clerk has completed to confirm process is undertaken as described
Tests of control for when clock in/out process not supervised
Enquire of the supervisor whether they perform a random check of employees.
Tests of control for when cemployee breaks not monitored
Review rota break time formally communicated
Tests of control for temporary staff appointed by factory supervisors?
Inspect HR procedures manual to ensure appointments of staff are responsible of HR department