Internal controls 2

Question 1

Types of audit

Question 2

Types of audit

Answer 2

A fully substantive audit involves testing the numbers in the financial statements and is more common in smaller organisations where controls are less effective or not in place.

A controls-based audit (systems-based or business risk-based) involves testing the controls over the numbers that end up in the financial statements. The idea being that if the controls are effective there is less chance of the final numbers being misstated or omitted. Controls-based audits are large organisations with complex but well monitored systems and enough staff to have necessary controls.

Question 3

Controls in different areas of the business

Answer 3

Three different cycles in the business explaining what could go wrong and what control procedures we would expect to be in place that the auditor might proposes if controls were lacking. You will also see suggestions of how the auditor might test controls.

Question 4

1. Revenue system

Answer 4

4 phases:
Ordering and giving credit to a customer
Goods dispatched
Customer invoiced
Collecting payment

Question 5

Purchases and payables system

Answer 5

Ordering
Receipt of goods
Receipt of invoice
Paying invoice

Question 6

Stock

Question 7

Payroll system

Answer 7

3 phases:
Basis of payroll calculation
Calculation of wages and salaries
Payment of wages and salaries to employees