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

Question 1

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

Answer 1

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

Question 2

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

Answer 2

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

Question 3

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

Answer 3

Reduces risk of automated system generating errors during payroll processing

Question 4

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

Answer 4

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

Question 5

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

Answer 5

Reduces risk of input errors resulting in overpayment or underpayment

Question 6

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

Answer 6

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

Question 7

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

Answer 7

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

Question 8

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

Answer 8

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

Question 9

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

Answer 9

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

Question 10

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

Answer 10

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

Question 11

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

Answer 11

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

Question 12

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

Answer 12

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

Question 13

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

Answer 13

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

Question 14

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

Answer 14

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

Question 15

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

Answer 15

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

Question 16

Direct control for new sales system fully tested prior to implementation

Answer 16

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

Question 17

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

Answer 17

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

Question 18

Direct control for when customers undergo a credit check?

Answer 18

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

Question 19

Tests of control for when customers undergo a credit check?

Answer 19

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

Question 20

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

Answer 20

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

Question 21

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

Answer 21

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

Question 22

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

Answer 22

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

Question 23

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

Answer 23

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

Question 24

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

Answer 24

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

Question 25

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

Answer 25

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

Question 26

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

Answer 26

Reduces errors in the automated transfer during payroll processing

Question 27

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

Answer 27

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

Question 28

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

Answer 28

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

Question 29

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

Answer 29

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

Question 30

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

Answer 30

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

Question 31

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

Answer 31

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

Question 32

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

Answer 32

Reduces the risk of ficticious employees being set up by payroll

Question 33

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

Answer 33

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

Question 34

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

Answer 34

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

Question 35

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

Answer 35

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

Question 36

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

Answer 36

Ensures goods are only purchased which are business related

Question 37

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

Answer 37

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

Question 38

Direct control for goods received notes are received and checked?

Answer 38

Ensures company is not paying for goods it did not order

Question 39

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

Answer 39

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

Question 40

Direct control for purchases invoices logged with control totals?

Answer 40

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

Question 41

Tests of control for purchases invoices logged with control totals?

Answer 41

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

Question 42

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

Answer 42

Reduces risk suppliers are paid the incorrect amount

Question 43

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

Answer 43

Review payments list for evidence of review by finance director

Question 44

Direct controls for asset classification checks?

Answer 44

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

Question 45

Test of controls for asset classification checks?

Answer 45

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

Question 46

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

Answer 46

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

Question 47

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

Answer 47

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

Question 48

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

Answer 48

Review file of completed bank reconciliations to identify who prepared them

Question 49

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

Answer 49

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

Question 50

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

Answer 50

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

Question 51

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

Answer 51

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

Question 52

Test of controls for when overtime is not authorised?

Answer 52

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

Question 53

Test of controls for when bank transfer is authorised?

Answer 53

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

Question 54

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

Answer 54

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

Question 55

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

Answer 55

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

Question 56

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

Answer 56

Important cash is adequately safeguarded to reduce risk of misappropriation

Question 57

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

Answer 57

Enquire payroll clerks how cash is delivered for weekly pay packets

Question 58

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

Answer 58

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

Question 59

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

Answer 59

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

Question 60

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

Answer 60

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

Question 61

Tests of control for supplier statement reconciliation?

Answer 61

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

Question 62

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

Answer 62

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

Question 63

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

Answer 63

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

Question 64

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

Answer 64

Reduces risk of fraud which will result in misstatement of revenue

Question 65

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

Answer 65

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

Question 66

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

Answer 66

Prevents invoices from being paid twice resulting in unnecessary cash outflow

Question 67

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

Answer 67

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

Question 68

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

Answer 68

Daily cashing up procedures reduces risk of misstatement within cash balance

Question 69

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

Answer 69

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

Question 70

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

Answer 70

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

Question 71

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

Answer 71

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

Question 72

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

Answer 72

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

Question 73

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

Answer 73

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

Question 74

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

Answer 74

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

Question 75

Tests of control for when cemployee breaks not monitored

Answer 75

Observe dining area during break to ensure supervisor is present

Question 76

Tests of control for temporary staff appointed by factory supervisors?

Answer 76

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

Question 77

Tests of control for overtime authorised after payment made

Answer 77

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

Question 78

Tests of control for production supervisors determine bonuses?

Answer 78

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

Question 79

Tests of control for no input checks on bonuses?

Answer 79

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

Question 80

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

Answer 80

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

Question 81

Tests of control for payroll calciulations not checked?

Answer 81

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

Question 82

Tests of control for changes to standing data?

Answer 82

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

Question 83

Tests of control for authorisation of overtime?

Answer 83

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

Question 84

Tests of control for no checks on time off taken?

Answer 84

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

Question 85

Tests of control for review of overtime?

Answer 85

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

Question 86

Tests of control for payments list not checked

Answer 86

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

Question 87

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

Answer 87

Reduces risk of orders being processed incorrectly. Ensures sales accuracy

Question 88

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

Answer 88

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

Question 89

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

Answer 89

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

Question 90

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

Answer 90

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

Question 91

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

Answer 91

Risk of irrecoverable debt is reduced

Question 92

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

Answer 92

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

Question 93

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

Answer 93

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

Question 94

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

Answer 94

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

Question 95

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

Answer 95

Ensures only necessary goods and services are procured

Question 96

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

Answer 96

Inspect a sample of requisitions for evidence of authorisation

Question 97

Direct control for when approved supplier list

Answer 97

Gives assurance about the quality of goods and reliability of suppliers

Question 98

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.

Answer 98

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

Question 99

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.

Answer 99

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

Question 100

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

Answer 100

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

Question 101

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

Answer 101

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

Question 102

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

Answer 102

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

Question 103

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

Answer 103

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

Question 104

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

Answer 104

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

Question 105

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

Answer 105

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

Question 106

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

Answer 106

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

Question 107

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

Answer 107

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