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AA Question Rote > Internal Controls Section B (Risks and Recommendations) > Flashcards

Internal Controls Section B (Risks and Recommendations) Flashcards

1
Q

What is the test of control?

A

To ensure the control is operating effectively

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2
Q

What is meant by a direct control?

A

Prevent, detect and correct mistakes in the accounts

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3
Q

What is meant by a key control?

A

Action management have taken to reduce risk of fraud and error

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4
Q

Risk of production of goods not being stopped for an inventory count?

A

Goods could be included in count when they shouldn’t be, resulting in double counting

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5
Q

Control recommendation of production of goods not being stopped for an inventory count?

A

Company should minimise planned dispatches for day of count. Goods to be dispatched to customers should be excluded from inventory by being set aside

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6
Q

Risk of production of inventory count being undertaken by 20 teams from the warehouse and is overseen by warehouse supervisor

A

Represents lack of segragation as they are not independent

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7
Q

Control recommendation of production of inventory count being undertaken by 20 teams from the warehouse and is overseen by warehouse supervisor

A

Different department should do count to ensure segragation of roles. Make financial controller oversee count, not warehouse supervisor

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8
Q

Risk of inventory sheets detail quantities held at date of the count?

A

Counters may rely on sheet instead of counting themselves. This could result in overstatement or understatement

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9
Q

Control recommendation of inventory sheets detail quantities held at date of the count?

A

Count sheets shouldn’t contain quanities just product codes. Ensures counters have to physically count inventory

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10
Q

Risk of 20 teams comprising two individuals with no clear division of responsibility?

A

Two members could be counted, meaning errors could go unnoticed

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11
Q

Control recommendation of 20 teams comprising two individuals with no clear division of responsibility?

A

Role of teams should be defined in count instructions (e.g. one individual doing counting and another one recording)

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12
Q

Risk of when an area is counted it is marked off on warehouse map in the office instead of marking it?

A

If map not updated properly, items of inventory could be incorrectly recorded

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13
Q

Control recommendation of when an area is counted it is marked off on warehouse map in the office instead of marking it?

A

Warehouse bays should be inspected at end of count to ensure completeness of the count

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14
Q

Risk of when inventory is only counted by one team?

A

Difficult if any omissions are due to counting errors or genuine adjustments

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15
Q

Control recommendation for when inventory is only counted by one team?

A

Do a second count not done by a team involved in the first count. Differences are then compared

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16
Q

Risk of when large quantity of spare parts are not being counted as they are unusable?

A

Items not being counted as all items should be included no matter if they’re old or obsolete

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17
Q

Control recommendation of when large quantity of spare parts are not being counted as they are unusable?

A

Obsolete items should be flagged on inventoruy count for valuation, not omitted

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18
Q

Risk of when completed inventory sheets are passed to warehouse assistant for an immediate update?

A

There is no investigation of differences between physically and what’s been recorded. Meaning understatement or overstatement is possible

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19
Q

Control recommendation of when completed inventory sheets are passed to warehouse assistant for an immediate update?

A

All differences should be investigated to estbalish whether inventory records are incorrect

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20
Q

Risk of when warehouse supervisor is going to undertake valuation of work in progress at year end when previously done by expert?

A

Warehouse supervisor may not have necessary expertise to determine stage of completion

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21
Q

Control recomenndation of when warehouse supervisor is going to undertake valuation of work in progress at year end when previously done by expert?

A

A specialist should continue to value work in progress or if that’s not possible, specialsit should check supervisor’s work

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22
Q

Risk of when cred it check performed on all customers after which finance director sets the limit and this remains unchanged

A

If credit limits aren’t reviewed regularly, they could be too high (customers with bad credit) or too low (lose of revenue)

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23
Q

Control recommendation of when credit check performed on all customers after which finance director sets the limit and this remains unchanged

A

Credit limits should be reviewed regularly and amended when approprate

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24
Q

Risk of when no copy of sales order is kept by the sales department?

A

If orders are not fulfilled on a timely basis, this reduces customer goodwill

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25
Q

Control recommendation of when no copy of sales order is kept by the sales department?

A

Sales order form should become four part instead of three part, so the form is sent to the sales department

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26
Q

Risk of when discounts aren’t reviewed and are being set by sales staff?

A

No check if the discount is reasonable, loss of revenue doesn’t meet business targets

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27
Q

Control recommendation of when discounts aren’t reviewed and are being set by sales staff?

A

All sales discounts should be authorised in advance by an appropriate official. Master file data system should be amended to stop a higher discount fromb eing entered

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28
Q

Risk of when master data access for the sales department is available for everyone in purchasing department?

A

If anyone can add new suppliers to purchase ledger system, fraudulent payments can occur

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29
Q

Control recommendation of when master data access for the sales department is available for everyone in purchasing department?

A

Amendments to master file data should only be done by authorised members of the department

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30
Q

Risk of when GRNs not received by finance department for purchase invoices?

A

Could result in invoices being paid when they haven’t been received

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31
Q

Control recommendation of when GRNs not received by finance department for purchase invoices?

A

GRN should be sent to finance department on a timely basis for matching to purchase invoices

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32
Q

Risk of when payables clerk only ultilises count controls when inputting invoices into payables ledger?

A

Suppliers may not be paid on time or incorrect amounts. Losing supplier goodwill

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33
Q

Control recomendation of when payables clerk only ultilises count controls when inputting invoices into payables ledger?

A

Apply information processing controls (e.g. control totals) rather than just completeness checks to ensure purchase invoices are inputted correctly

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34
Q

Risk of when no checks are performed on an automated system?

A

Errors and overpayments could be made resulting in a loss of employee goodwill

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35
Q

Control recommendation of when no checks are performed on an automated system?

A

Senior official should check data and this should be evidenced by a signature

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36
Q

Risk of when payroll clerk can edit payroll data without this being reviewed?

A

Payroll data can be adjusted to inflate pay of family and deductions being made resulting in loss of employee goodwill

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37
Q

Control recommendation of when payroll clerk can edit payroll data without this being reviewed?

A

Adjustments made to the reports should be reviewed by a senior offical and evidenced by a signature

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38
Q

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

A

Increased risk of assets being misappropriated and obsolete assets may not be identified on a timely basis

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39
Q

Control recommendation of when non-current register is not being physically verified on a frequent basis?

A

Devote more resources to ensure checking is done accurately. Write off assets that can’t be located and investigate where such assets could be

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40
Q

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

A

A high threshold will mean significant costs are expensed to SPL and understatement of PPE

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41
Q

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

A

Any significant changes to accounting policies must be discussed at the board level

42
Q

Risk of when finance director authorises monthly supplier payments but only views total amount of payments to be made?

A

Without looking at details of payment list, suppliers may be paid an incorrect amount or paid to ficticious suppliers

43
Q

Control recommendation of when finance director authorises monthly supplier payments but only views total amount of payments to be made?

A

Finance director should review whole payment listing prior to authorising as well as identify any duplicates or unfamilar names

44
Q

Risk of when there are no petty cash receipts?

A

This could mean sundry expenses are being made for non0-business purposes

45
Q

Control recommendation of when there are no petty cash receipts?

A

Employees should be required to promptly return a receipt for sundry purchases. The petty cash book should be updated

46
Q

Risk of when bank reconciliations are done on a quarterly basis?

A

Error or fraud may not be recognised quickly when done on a timely basis

47
Q

Control recommendation of when bank reconciliations are done on a quarterly basis?

A

All bank accounts should be reconciled each month and statements should be investigated and corrected

48
Q

Risk of when no joiners’ forms are not completed?

A

Production supervisor may not include all relevant details on email to payroll

49
Q

Control recommendation of when no joiners’ forms are not completed?

A

Joiner form should be completed for all new employees. Authorised joiner form should be sent to pauroll on day employee commences employment

50
Q

Risk of when overtime reviewed quarterly?

A

Reviewing overtime worked reports quarterly after employees been paid too infrequent. Employees could be paid for hours not worked

51
Q

Control recommendation of when overtime reviewed quarterly?

A

Implement a weekly or bi-weekly review of overtime logs by supervisors to ensure accuracy and compliance with policies

52
Q

Risk of Cawhen calculations not checked in payroll?

A

Risk system errors which occur won’t be identified. This could result in wages being over or under calculated

53
Q

Control recommendation of when calculations not checked in payroll?

A

For a sample of employee, senior member should recalculate workings and compare their results to output from payroll system

54
Q

Risk of when one manager decides on who receives bonuses for performance?

A

There are no approved parameters for bonus level as it’s purely based on discretion of one individual

55
Q

Control recommendation of when one manager decides on who receives bonuses for performance?

A

Bonus payments should be determined in line with specified and documented criteria and approved by the board

56
Q

Risk of when bonuses input into system are error and employees spot the error?

A

Increases payroll cost as if one employee is underpaid, it’s more than likely other employees have been overpaid

57
Q

Control recommendation of when bonuses input into system are error and employees spot the error?

A

Bonuses should be reviewed to agree they are in line with documentation provided by HR

58
Q

Risk of when internet banking detauls are saved in a central location to all payables ledger?

A

Risk that staff are fraudulently setting up payees, causing misappropriation of funds

59
Q

Control recomendation of when internet banking detauls are saved in a central location to all payables ledger?

A

Banking details should only be known by a few authorised staff. Any changes to payees should be documented on a change report

60
Q

Risk of when reconciling item on bank rec is only investigated by controller if sum of items is different

A

If reconciling items aren’t reviewed, this causes lack of assurances that reconciliations are being carried out properly

61
Q

Control recommendation of when reconciling item on bank rec is only investigated by controller if sum of items is different

A

Reconciling items should be reviewed by controller on a weekly basis

62
Q

Risk of GDNs not being received immediately to finance department?

A

Could result in goods despatched being invoiced late. Cut-off issues for revenue and receivables

63
Q

Control recommendation of GDNs not being received immediately to finance department?

A

GDNs should be sent to finance department on a more frequent basis (e.g. daily)

64
Q

Risk of credit controller being replaced?

A

No one is responsible for monitoring and chasing ageing receivables. Causing increased irrecoverable receivables

65
Q

Control recommendation of credit controller not being replaced?

A

Recruit a temporary credit controller to deal with aged receivables listing

66
Q

Risk of authorisation is too high for assets

A

Non-business assets being purchased without authorisation

67
Q

Control recommendation for authorisation is too high for assets

A

Authorisation level should be reduced to a more appropriate level

68
Q

Risk when standard costs in inventory are out-of-date?

A

Raw materials and wages haven’t been adjusted. Causing inventory and profits to be misstated

69
Q

Control recommendation when standard costs in inventory are out-of-date?

A

Actual costs for raw materials and labour should be compared to proposed standard costs to ensure they are a close approximation

70
Q

Risk when exception report changes are not reviewed?

A

When an exception is not reviewed, changes aren’t likely to happen. Meaning clerks can commit fraud by placing ficticious suppliers

71
Q

Control recommendation when exception report changes are not reviewed?

A

Changes to master file data should be reviewed by an authorised person, and such a review should be evidenced

72
Q

Risk when holiday requests not authorised?

A

Result in employees taking unauthorised leave, leading to operational difficulties

73
Q

Control recommendation when holiday requests not authorised?

A

Employees should receive written confirmation that their holiday has been removed

74
Q

Risk when temporary staff not processed by HR and documentation not being included?

A

Could result in temporary employees not being set up in payroll records correctly

75
Q

Control recommendation for when temporary staff not processed by HR and documentation not being included?

A

Payroll department should not be notified to accept any new joiner information unless approved by HR

76
Q

Risk when cash wages collected without ID?

A

Increased risk wages are paid to the incorrect employee

77
Q

Control recommendation when cash wages collected without ID?

A

Drivers collecting cash pay packets should provide form of identification to finance staff member before pay packet is handed to them

78
Q

Risk when bonus a manager decides on who pays the bonus?

A

Manager may award excessive bonuses to friends causing additional payroll costs

79
Q

Control recommendation when bonus a manager decides on who pays the bonus?

A

Approved bonus parameters should be established across the board. Only determined by a senior official

80
Q

Risk when driver’s breaks are not monitored?

A

Drivers could take longer breaks than authorised, meaning money is given to time not worked

81
Q

Control recommendation when driver’s breaks are not monitored?

A

Company should monitor throguh electronic means, such as using tracking devices on vehicles

82
Q

Risk for when staff shortage for IA department?

A

An under-staffed department means controls can’t be tested thoroughly

83
Q

Control recommendation for when staff shortage for IA department?

A

Senior management should consider recrutiing additional employees to join IA function or outsourcing IA function

84
Q

Risk for when departments significantly exceed their asset budgets?

A

Increased costs as lack of control over asset expenditure or more services are being provided

85
Q

Control recomemndation for when departments significantly exceed their asset budgets?

A

Purchase orders should be compared to annual department budgets as part of authorisation process

86
Q

Risk for when physical verification of asset for some factories is only done every 8 years?

A

Increased risk of assets not being checked if non-current asset reguister is not physically verified

87
Q

Control recommendation for when physical verification of asset for some factories is only done every 8 years?

A

Each centre should submit list of assets with serial numbers to IA, which is then compared to non-current asset register. Any significant variations investigated

88
Q

Risk for when all members of payroll department can amend standing data?

A

Results in errors being made or unauthorised changes being made

89
Q

Control recommendation for when all members of payroll department can amend standing data?

A

Password to amend standing data only changed and only communicated senior members of payroll department

90
Q

Risk for when senior payroll manager if they can process changes along with authorise payments?

A

Discrepancies may arise due to payroll records on bank transfer being incorrect

91
Q

Control recommendation for when senior payroll manager if they can process changes along with authorise payments?

A

Authorisation of bank transfer listing should be done by individual outside payroll department

92
Q

Risk for when invoices are only chased after 90 days when company’s credit terms are 30 days?

A

Results in irrecoverable balances and reduced profit and cash flows

93
Q

Control recommendation for when invoices are only chased after 90 days when company’s credit terms are 30 days?

A

Credit controller should be appointed to chase outstanding invoices more than 3o days old

94
Q

Risk when website and inventory system not integrated?

A

Can result in pear accepting customer orders when goods are not available. Damaging goodwill

95
Q

Control recommendation for website and inventory system not integrated?

A

Website should be updated to include an interface into the inventory system

96
Q

Risk when customer signatures not obtained when goods are despatched

A

Customers can claim they have not received their goods, thereby goods are sent twice

97
Q

Control recommendation when customer signatures not obtained when goods are despatched

A

Customer signatures should be obtained as proof of delivery

98
Q

Risk when unfilled sales orders haven’t been fulfilled in timely manner?

A

Could lead to a loss of customer goodwill

99
Q

Control recommendation when unfilled sales orders haven’t been fulfilled in timely manner?

A

Once goods despatched, they should be matched to sales orders and flagged as fulfilled

100
Q

Risk when production requisitions are authorised by production supervisors?

A

Production supervisors aren’t sufficiently independent and could lead to unnecessary cost if best price is not obtain for asset expenditure

101
Q

Control recommendation when production requisitions are authorised by production supervisors?

A

Asset expenditure authorisation levels need to established. High level authorised by board, low level by production supervisors

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