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AAT Level 4 > Internal Controls > Flashcards

Internal Controls Flashcards

1
Q

Financial Statements - Full Set of Statutory Accounts

A

Statement of comprehensive income (P&L)
Statement of financial position
Statement of changes in equity
Statement of cashflows
Notes to the accounts

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2
Q

Statement of comprehensive income (P&L)

A

Shows performance for a period of time, resulting in profit or loss

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3
Q

Statement of financial position

A

Shows assets, liabilities & equity at a point in time
Shows how much the company owns or owes

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4
Q

Statement of changes in equity

A

Detailed statement of the movement in equity section (financed by section)

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5
Q

Statement of cashflows

A

Real cash movement
Story which tells the story of bank balance movement

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6
Q

Notes to the accounts

A

Details policies used (depreciation)
Details any irregular events (lost inventory due to fires, court case, large bad debt)

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7
Q

Internal Stakeholders

A

Staff - working conditions, development, workload
Directors - performance, bonuses
Credit control - receivable days, performance
Management accountant - to plan budgets & variances

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8
Q

External Stakeholders

A

Bank - they want you to bank with them
Suppliers - quantity of supply, payable days
Investors - current & potential investors, invest more or sell?
HMRC - make sure they are getting right amount of tax

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9
Q

Treasury Department

A

Invest on behalf of the company
Ensure money is in the correct places / accounts
Managing cashflow
Lending on behalf of the company
Monitor & plan for currency / interest rates

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10
Q

Internal Audit

A

Work for the company
Optional
Checks processes & procedures
Addresses any issues

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11
Q

External Audit

A

External company coming in
Legally required if the company is large
Checks accuracy of accounts
Reports on the processes
End result - Audit report, gives conclusion of how good the accounts are

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12
Q

8 Control Activities

A

Supervision
Personnel
Authorisation & Approval
Management
Segregation of Duties
Organisational Structure
Accounting & Mathematical checks
Physical

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13
Q

Control Activities: Supervision

A

Supervisors
CCTV
Remote computer access

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14
Q

Control Activities: Personnel

A

Getting right people for the right job
Qualifications
DBS
References
Criminal conviction check

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15
Q

Control Activities: Authorisation & Approval

A

Who can approve?
Credit limits
Method of approval
Number of people to authorise

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16
Q

Control Activities: Management

A

Different levels and responsibilities of managers

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17
Q

Control Activities: Segregation of Duties

A

Break down a task to have more people involved
Reduces error / fraud
Potential of collusion - 2 or more people working together to commit fraud

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18
Q

Control Activities: Accounting & Mathematical Checks

A

Bank reconciliation
Debtors / Credits rec
Auto calc for VAT
Software with date checks, duplicate checks, credit limit checks

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19
Q

Control Activities: Physical

A

Locked doors
FOB access
Passwords
Safe
Photo ID

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20
Q

Receivable Days

A

Trade receivables / Revenue (only credit) X 365
= x days

Average number of days for credit customers to pay
Can be affected by: discounts, credit terms, bad debts, credit control department
Aim to be as small as possible / on target

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21
Q

Payable Days

A

Trade payables / cost of sales X 365
= x days

If no cost of sales, use PURCHASES

Average number of days to pay credit suppliers
If bigger: improve cash flow, possible late fees
If smaller: better supplier relationships, better terms, discounts, increased credit rating

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22
Q

Inventory Days

A

Average inventory / cost of sales X 365
= x days
Use closing inventory if can’t work out average

Average amount of days inventory is held for
Pros: buffer stock so can meet demand if there are shortages elsewhere
Cons: can become obsolete, have to pay to store / insure

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23
Q

Gross Profit Margin

A

Gross profit / Revenue X 100
= %

Shows the amount of revenue which has been converted into gross profit

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24
Q

Operating Profit Margin

A

Operating profit / Revenue X 100
= %

Shows the amount of revenue which has been converted into operating profit

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25
Q

Return On Capital Employed

A

Operating profit / Capital employed X 100
= %

Shows how well the long term funding is being used and how much profit is being generated from it

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26
Q

Capital Employed

A

Non Current Liabilities + Total Equity

OR

Total Assets - Current Liabilities

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27
Q

Asset Turnover

A

Revenue / Capital Employed
= x times

Shows how many times the long term funding has been turned into revenue

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28
Q

Working Capital Cycle

A

Inventory days + receivable days - payable days

The days the business has to fund itself
Ideally want this to be 0

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29
Q

Inventory Turnover

A

365 / Inventory Days

The number of times the stock room empties & refills

30
Q

Current Ratio

A

Current assets / Current liabilities = X:1

Shows how much asset we have to cover every £1 of debt (liabilities)
A measure of liquidity, short term cash flow
Ideal is 2:1 or above

31
Q

Quick Ratio (Acid Test)

A

(Current assets - inventory) / Current liabilities = X:1

Shows how much asset we have to cover every £1 of debt (liabilities), less inventory as it is the least liquid asset
A measure of liquidity, short term cash flow
Ideal is 1:1 or above

32
Q

Gearing

A

Non-current liabilities / (non current liabilities + equity) X 100
= %

Shows the percentage of the company which is funded by debt not equity

33
Q

Strategic Level of Organisation

A

Senior Management

34
Q

Tactical Level of Organisation

A

The people who make senior management plans happen

35
Q

Operational Level of Organisation

A

Day to day operations staff

36
Q

Wide / Flat Structure

A

Less layers
More responsibility at each layer
Quicker decisions made

37
Q

Thin / Tall Structure

A

Lots of layers
Longer for decision to make
Longer ‘scaler’ chain

38
Q

Centralised Organisation

A

All power and decisions are at head office

39
Q

Decentralised Organisation

A

The power is delegated to divisional heads
Done from local branch

40
Q

Scalar Chain

A

Steps between lowest and highest in organisation

41
Q

Fraud

A

Intentional
Deliberate
Illegally gaining an advantage
Causing a loss

42
Q

Types of Fraud: Theft

A

Can be physical / non physical

43
Q

Types of Fraud: Bribery / Corruption

A

Giving or receiving of a bribe to influence

44
Q

Deception

A

Obtaining by deception
Lying

45
Q

False Accounting

A

AKA window dressing
Making accounts look better than they actually are
E.g. Increase revenue, exclude an expense

Would happen when looking for investment, selling the company or at year end for bonuses

46
Q

Misappropriation of Assets

A

Theft of assets

47
Q

Misstatement of Assets

A

Assets not correctly stated / valued
Most commonly inventory

48
Q

Financial Impact of Fraud

A

The monetary amount

49
Q

Non-Financial Impact of Fraud

A

Reputation
Relationships
Trust

50
Q

Fraud Triangle

A

Opportunity - There is a problem with the controls in the business
Motivation - Desperation, greed, revenge
Rationalisation - Dishonest

NEED ALL 3 POINTS FOR FRAUD TO OCCUR

51
Q

Cyber Attack

A

Hacker wanting to gain access or damage a system / network

52
Q

Ransomware

A

System taken over by an attacker and only released after payment of a ‘ransom’
Payment normally in crypto

53
Q

Man In The Middle Attack

A

Logging into a false middle website which gives the hacker access to see everything you are doing

54
Q

Malware

A

Virus which is a malicious software
Can disrupt, damage or gain access to a system

55
Q

Phishing

A

False emails asking for card details, etc.

56
Q

Denial of Service Attack

A

Over powering a website in order to crash it

57
Q

Data Protection Act 2018

A

Data needs to be kept secure - password protection, change regularly
Can’t keep data any longer than needed
Keep data accurate, update when necessary

58
Q

Data Analytics

A

Analyses large amounts of data to find trends / patterns
Seeks out odd results

59
Q

Predictive Data Analytic

A

Predicting what’s going to happen next

60
Q

Diagnostic Data Analytic

A

Diagnosing
Why has it happened?

61
Q

Prescriptive Data Analytic

A

How are we going to fix it

62
Q

Descriptive Data Analytic

A

Description of what has happened

63
Q

Parallel / Dual Changeover

A

2 systems running alongside each other

64
Q

Direct Changeover

A

Switch old one off, switch new one on

65
Q

Phased Changeover

A

Change over in stages, department by department

66
Q

Pilot Before Changeover

A

Trial new system in a department to see how it goes before changing over

67
Q

Change Agent

A

External service who deals with the changeover
Useful for overcoming staff resistance to change

68
Q

Non Financial Considerations On Change

A

Staff reluctant to change - creatures of habit, scared for job security, can’t see need for change
Can be slower at first
More queries
Staff frustration
Customer frustration
Staff concerned for job security

69
Q

SWOT Analysis

A

Strengths - In our control, what its good at, INTERNAL
Weaknesses - In our control, what we can improve on, INTERNAL
Opportunities - Chances to improve (based on weaknesses), EXTERNAL, PESTLE
Threats - Out of your control, Competitors, PESTLE, EXTERNAL

70
Q

Monitor, Review & Report

A

Monitor - what are you aiming to keep an eye on?
Review - how are you going to monitor?
Report - report your findings, imagine presentation

71
Q

2 Main Types Of Fraud

A

Misappropriation of Assets
Misstatement of Financial Statements

AAT Level 4 (6 decks)

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