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

inspect the weekly payroll listing for evidence of signature by two members of staff involved in the preparation of the pay packets

Question 9

Tests of control for when no checks are performed on an automated key card 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

Review a sample of GRNs held in the warehouse department for signature, as evidence of checks being undertaken on receipt of goods

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

The audit team should utilise test data procedures to assess whether data can be entered without the use of batch control totals

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

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

Enquire 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

Enquire of the supervisor whether they perform a random check of employees.

Question 75

Tests of control for when cemployee breaks not monitored

Answer 75

Review rota break time formally communicated

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

Enter dummy data into the system to try and by pass the checks, system should reject this

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.

Question 108

Direct control for factory staff are issued with clock cards which they are required to swipe to enter and exit the factory and this process is supervised by security staff

Answer 108

This ensures that genuine employees are only paid for the work actually done and reduces the risk of employees being paid but not completing their required hours.

Question 109

Test of control for factory staff are issued with clock cards which they are required to swipe to enter and exit the factory and this process is supervised by security staff

Answer 109

Observe the use of clock cards by employees when entering and exiting the factory and confirm that security staff are supervising the process.

Question 110

Control risk for the finance director authorises the monthly supplier payments listing, but only views the total amount of payments to be made?

Answer 110

When looking at payment list, there is a risk that suppliers are being paid the incorrect amount

Question 111

Control recommendation for the finance director authorises the monthly supplier payments listing, but only views the total amount of payments to be made?

Answer 111

Finance director should review payment list prior to authorisation

Question 112

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

Answer 112

Sample of payment listings should be reviewed to verify that the finance director has agreed the amounts payable to supporting documentation prior to the bank transfer being made

Question 113

Control risk for the company maintains four bank accounts but only the main current account is reconciled on a monthly basis, with the other three bank accounts being reconciled quarterly?

Answer 113

If all accounts are not reconciled on a monthly basis, errors or fraud may not be spotted on a timely basis

Question 114

Control recommendation for the company maintains four bank accounts but only the main current account is reconciled on a monthly basis, with the other three bank accounts being reconciled quarterly?

Answer 114

All bank accounts should be reconciled each month and any reconciling items on the bank reconciliation statements should be investigated and corrected

Question 115

Tests of control for the company maintains four bank accounts but only the main current account is reconciled on a monthly basis, with the other three bank accounts being reconciled quarterly?

Answer 115

Review a sample of bank reconciliation statements for all bank accounts to ensure they are being completed and reviewed on monthly basis.

Question 116

Direct control for the receivables ledger clerk performs a monthly review of the aged receivables listing and identifies those aged more than 30 days which are followed up with the relevant customers by the credit control department?

Answer 116

The regular review of the aged receivables listing and subsequent action by credit control should ensure that debts are collected on a timely basis which reduces the risk of irrecoverable debts

Question 117

Tests of control for the receivables ledger clerk performs a monthly review of the aged receivables listing and identifies those aged more than 30 days which are followed up with the relevant customers by the credit control department?

Answer 117

Obtain a copy of the aged receivables report downloaded and confirm there is evidence of review, such as a signature or electronic sign‐off, by the receivables ledger clerk

Question 118

Direct control for the accounts clerk performs a monthly trade receivables account reconcilia tion and resolves errors on a timely basis. The reconciliation is reviewed and approved by the financial controller?

Answer 118

Regular reconciliation of the list of individual customer balances and the trade receivables account helps to ensure that the receivables balance presented in the financial statements is accurate

Question 119

Tests of control for the accounts clerk performs a monthly trade receivables account reconciliation and resolves errors on a timely basis. The reconciliation is reviewed and approved by the financial controller?

Answer 119

For a sample of reconciliations with reconciling items trace to supporting documentation to confirm that errors have been corrected.

Question 120

Direct control for the clocking‐in process is monitored by a camera on entry to the distribution centre and video footage is reviewed by HR every week?

Answer 120

This will prevent staff members fraudulently clocking‐in for other employees and hence employees will only be paid for actual hours worked ensuring occurrence of payroll

Question 121

Tests of control for the clocking‐in process is monitored by a camera on entry to the distribution centre and video footage is reviewed by HR every week?

Answer 121

For a sample of weeks, review the log of the recordings to identify who reviewed that week’s footage to ensure it has been reviewed by a member of the HR department

Question 122

Direct controls for payroll clerk confirms the transfer of hours and calculations has been done accurately by recalculating, for a sample of employees, their gross to net pay

Answer 122

This reduces the risk that errors occur in the automated transfer and calculations during the payroll processing.

Question 123

Tests of controls for payroll clerk confirms the transfer of hours and calculations has been done accurately by recalculating, for a sample of employees, their gross to net pay

Answer 123

For a sample of months, review the calculations of gross to net pay for evidence that the calculations have been performed. Confirm the signature of the payroll supervisor as evidence that they have reviewed the report.

Question 124

Direct control for each month, the finance director carries out a payroll account reconciliation and investigates any differences

Answer 124

This will ensure the payroll expense and employment tax liability is accurate and is not misstated in the year‐end financial statements.

Question 125

Tests of control for each month, the finance director carries out a payroll account reconciliation and investigates any differences

Answer 125

Reperform a sample of account reconciliations and compare results with those prepared by the finance director. Discuss any discrepancies with the finance director

Question 126

Direct control for a separate human resources (HR) department, which is responsible for setting up all new employees

Answer 126

Having a segregation of roles between HR and payroll departments reduces the risk of fictitious employees being set up and also being paid

Question 127

Tests of control for a separate human resources (HR) department, which is responsible for setting up all new employees

Answer 127

Review the job descriptions of payroll and HR to confirm the split of responsibilities with regards to setting up new joiners

Question 128

Direct control for on a monthly basis an exception report of changes to payroll standing data is produced and reviewed by the payroll manager

Answer 128

This ensures that any unauthorised amendments to standing data are identified and investigated on a timely basis so that the data used when the payroll is run is valid and accurate.

Question 129

Tests of control for on a monthly basis an exception report of changes to payroll standing data is produced and reviewed by the payroll manager

Answer 129

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

Question 130

Direct control for warehouse department agrees the receipt of goods from suppliers to a copy of the purchase order

Answer 130

This ensures that Swift Co is not recording liabilities and subsequently paying for the receipt of inferior quality goods or for goods it did not order

Question 131

Tests of control for warehouse department agrees the receipt of goods from suppliers to a copy of the purchase order

Answer 131

Review a sample of GRNs held in the warehouse department for signature, as evidence of checks being undertaken on receipt of goods.

Question 132

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

Answer 132

Reduces the risk of fictitious employees being set up by payroll which would result in overstatement of payroll costs

Question 133

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

Answer 133

Attempt to add a new joiner to the payroll system without a unique employee number, the system should reject this addition.

Question 134

Direct control for cashier reconciles the bank statements to the bank ledger account monthly and this reconciliation is reviewed and investigated by the financial controller

Answer 134

Monthly review and investigation ensure that fraud and errors are identified on a timely basis, reducing the risk of misstatement of the bank and cash balance.

Question 135

Tests of control for cashier reconciles the bank statements to the bank ledger account monthly and this reconciliation is reviewed and investigated by the financial controller

Answer 135

For a sample of months reperform the bank reconciliation and where differences have occurred discuss and investigate these with the financial controller.

Question 136

Control risk if customer credit limits are set by sales ledger clerk?

Answer 136

Sales eldgers are not sufficiently senior

Question 137

Control recommendation if customer credit limits are set by sales ledger clerk?

Answer 137

Credit limits should be set by senior official in the sales department and not by sales ledger clerk

Question 138

Tests of control if customer credit limits are set by sales ledger clerk?

Answer 138

For a sample of new customers accepted in the year, review the authorisation of the credit limit, and ensure that this was performed by a responsible officia

Question 139

Control risk if customer orders are given a number based on the sales person’s own identification number

Answer 139

Without sequential numbers, it is difficult for company to identify missing orders

Question 140

Control recommendation if customer orders are given a number based on the sales person’s own identification number

Answer 140

Sales orders should be sequentially numbered. On a regular basis, a sequence check of orders should be undertaken to identify any missing orders

Question 141

Tests of control if customer orders are given a number based on the sales person’s own identification number

Answer 141

Reperform the control by undertaking a sequence check of sales orders. Discuss any gaps in the sequence with sales ordering staff.

Question 142

Control risk if overtime is not authorised prior to being paid?

Answer 142

The information per employee is collated and submitted to payroll by a production clerk, but not authorised. The production director is only informed about overtime levels via quarterly reports.

Question 143

Control recommendation if overtime is not authorised prior to being paid?

Answer 143

All overtime should be authorised by a responsible official prior to the payment being processed by the payroll department.

Question 144

Tests of controls if overtime is not authorised prior to being paid?

Answer 144

Review the overtime report for evidence of authorisation and note the date this occurred to ensure that this was undertaken prior to the payment of the overtime.

Question 145

Direct control if the quarterly production bonus is input by a clerk into the payroll system, each entry is checked by a senior clerk for input error s prior to processing

Answer 145

This reduces the risk of input errors resulting in misstatement of payroll costs and over/underpayment of the bonus to employees

Question 146

Tests of control if the quarterly production bonus is input by a clerk into the payroll system, each entry is checked by a senior clerk for input error s prior to processing

Answer 146

In addition, obtain listings of quarterly bonus payments and review for evidence of signature by the senior clerk who checks for input errors.

Question 147

Direct control if production employees are issued with clock cards and are required to swipe their cards at the beginning and end of their shift

Answer 147

This ensures that genuine employees are only paid for the work actually done, and reduces the risk of employees being paid but not completing their eight‐hour shift.

Question 148

Tests of control if production employees are issued with clock cards and are required to swipe their cards at the beginning and end of their shift

Answer 148

Confirm the security team is supervising the process and following up on discrepancies through discussions with the security staff.

Question 149

Control risk if GRNs are not processed regularly?

Answer 149

This could result in delays in suppliers being paid as the purchase invoices could not be agreed to a GRN and also recorded liabilities being understated

Question 150

Control recommendation if GRNs are not processed regularly?

Answer 150

A copy of the GRNs should be sent to the accounts department on a more regular basis, such as daily

Question 151

Tests of control if GRNs are not processed regularly?

Answer 151

Enquire of the accounts clerk as to the frequency of when GRNs are received to assess if they are being sent promptly.

Question 152

Direct control for credit checks and credit limits set and reviewed regularly?

Answer 152

All new customers are required to undergo a full credit check and credit limits are set with appropriate authorisation by the sales director.

Question 153

Tests of control for credit checks and credit limits set and reviewed regularly?

Answer 153

Inspect a sample of customer files to ensure a credit check has been obtained and review the date it was performed to ensure it is up to date

Question 154

Direct control if discounts must be requested by a sales manager and authorised by the sales director?

Answer 154

Reduces the risk of fraud which will result in misstatement of revenue

Question 155

Tests of control if discounts must be requested by a sales manager and authorised by the sales director?

Answer 155

Attempt to process an invocie with a sales discount that has not been authorised by the sales director. System should reject invoice

Question 156

Direct control if payments are made by the cashier’s office and recorded by the purchase ledger team?

Answer 156

This segregation of duties prevents fraud and error as one person is not responsible for the physical cash and updating the ledger which would enable someone to conceal the fraud

Question 157

Test of control if payments are made by the cashier’s office and recorded by the purchase ledger team?

Answer 157

Inspect the accounts team organisational chart to ensure appropriate segregation of duties between the cashier’s office and purchase ledger team.

Question 158

Direct control if invoices are stamped as “paid” and filed separately from invoices not yet paid?

Answer 158

Prevents invoices from being paid twice, prevents unnecessary cash outflow

Question 159

Tests of control if invoices are stamped as “paid” and filed separately from invoices not yet paid?

Answer 159

Inspect the file of paid invoices and ensure they are kept separate from invoices not yet paid. Inspect them for evidence they have been stamped as ‘Paid’

Question 160

Direct control if the daily sales readings from the tills along with the cash and credit card data are transferred to head office through a daily interface into the sales and cash receipts records?

Answer 160

Should ensure sales and cash records are updated on a prompt basis and are complete and accurate

Question 161

Tests of control if the daily sales readings from the tills along with the cash and credit card data are transferred to head office through a daily interface into the sales and cash receipts records?

Answer 161

Review the date on which the sales and cash receipt records were updated to ensure this occurred promptly

Question 162

Control deficiency if employees are entitled to a 30‐minute paid break and do not need to clock out to access the dining area.

Answer 162

Employees could be taking excessive breaks, leading to decreased productivity

Question 163

Control recommendation if employees are entitled to a 30‐minute paid break and do not need to clock out to access the dining area.

Answer 163

Employees should be allocated set break times and there should be a supervisor present to ensure that employees only take the breaks they are entitled to.

Question 164

Tests of control if employees are entitled to a 30‐minute paid break and do not need to clock out to access the dining area.

Answer 164

Review the rota for break‐times to ensure break times are formally communicated to staff

Question 165

Control risk if temporary staff appointed by factory supervisors?

Answer 165

The supervisor could appoint unsuitable employees and may not carry out all the required procedures for new joiners.

Question 166

Control recommendation if temporary staff appointed by factory supervisors?

Answer 166

All appointment of staff, whether temporary or permanent, should only be made by the human resources department.

Question 167

Tests of control if temporary staff appointed by factory supervisors?

Answer 167

Inspect the HR procedures manual to ensure that appointments of staff are the responsibility of the HR department

Question 168

Control risk if production supervisors determine bonuses

Answer 168

Production supervisors are not senior enoguh to determine bonuses

Question 169

Control recommendation if production supervisors determine bonuses

Answer 169

The bonus should be determined by a more senior individual, such as the production director, and this should be communicated in writing to the payroll department

Question 170

Tests of control if production supervisors determine bonuses

Answer 170

Inspect the communication of bonuses to the payroll department and ensure it is sent by a senior official.

Question 171

Control risk if no identity checks on cash payments

Answer 171

Even if most employees are known to the clerk, there is a risk that without identity checks wages could be pai d to incorrect employees

Question 172

Control recommendation if no identity checks on cash payments

Answer 172

The payroll clerks should be informed that all cash wages can only be paid upon sight of the employee’s clock card and photographic identification as this confirms proof of identity

Question 173

Tests of control if no identity checks on cash payments

Answer 173

Observe the process of wage collection to ensure that employees can only collect their wages on production of their clock card and photographic ID.

Question 174

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

Answer 174

This reduces the risk of orders being processed incorrectly, goods not being delivered to the correct location and card payments not being received.

Question 175

Tests of control if website has controls to check the validity of the data entered by the customer

Answer 175

Input a sales order into the website with various incorrect details to check that the system would reject the order

Question 176

Direct control if sales invoices are raised from GDN?

Answer 176

This ensures the invoice relates to the actual quantity and type of goods despatched rather than the order which may be different

Question 177

Tests of control if sales invoices are raised from GDN?

Answer 177

Inspect the GDN for evidence of being matched to invoices to ensure the control has been performed.

Question 178

Direct control if regular customer statements and follow up of overdue debts

Answer 178

Reminds customers of the invoices they need to pay and also means they can check if there are any errors in the invoices. Risk of irrecoverable debts is reduced

Question 179

Tests of control if regular customer statements and follow up of overdue debts

Answer 179

For a sample of customers, inspect copies of the monthly statements to confirm that they are actually sent out

Question 180

Control deficiency for the internal audit (IA) department undertakes physical verification of assets each year, and it takes over ten years to physically verify all 21 sites

Answer 180

If the non‐current asset register is not physically verified on a regular basis, there is an increased risk of assets being misappropriated as there is no check that the assets still exist in their correct location

Question 181

Control recommendation for the internal audit (IA) department undertakes physical verification of assets each year, and it takes over ten years to physically verify all 21 sites

Answer 181

During visits, any assets which cannot be located should be investigated fully to identify where they could be. If they cannot be located, then they should be written off

Question 182

Tests of control for the internal audit (IA) department undertakes physical verification of assets each year, and it takes over ten years to physically verify all 21 sites

Answer 182

Review records from physical verification visits by IA to ensure comparisons have been performed

Question 183

Control deficiency for holiday requests not always authorised?

Answer 183

This could result in employees taking unauthorised leave, resulting in production difficulties if an insufficient number of employees are present to operate the power plant.

Question 184

Control recommendation for holiday requests not always authorised?

Answer 184

Payroll clerks should not process holiday payments without agreement to the authorised holiday form

Question 185

Control deficiency is when company values iots inventory using standard costs, whicha re kept up-to-date?

Answer 185

If standard costs reviewed a long time ago, risk costs are misstated since changes in raw materials may not have been accounted for

Question 186

Control recommendation when company values iots inventory using standard costs, whicha re kept up-to-date?

Answer 186

Review of all standard costs should be undertaken bu a senior manager in production costs to determine if any adjustments need to be made

Question 187

Tests of control when company values iots inventory using standard costs, whicha re kept up-to-date?

Answer 187

Obtain copy of the standard costs used for inventory valuation, assess when review was last undertaken and inspect evidence of review by production director

Question 188

Direct control if warehouse department agrees the receipt of goods from supplier to a copy of the purchase orders abd confirms quantity/quality of goods and signs GRNs to evidence checks

Answer 188

Not recording liabilities which are related to paying for goods of an inferior quality

Question 189

Tests of control if warehouse department agrees the receipt of goods from supplier to a copy of the purchase orders abd confirms quantity/quality of goods and signs GRNs to evidence checks

Answer 189

Review sample GRNs held in the warehouse department for signature, as evidence of checks being undertaken on receipt of goods

Question 190

Direct control for new sales system was fully tested prior to its implementation and the new and old systems are being run in parallel until year-end

Answer 190

Reduces risk data is list or not processed correctly if there are issues associated with operation of the new system

Question 191

Tests of control for new sales system was fully tested prior to its implementation and the new and old systems are being run in parallel until year-end

Answer 191

Review procedures and documentation relating to the testing which has been undertaken and errors have been resolved