Introduction to Internal Control Flashcards
Which of these is a reason that organisations have effective systems of control?
A. Maximising profitability
B. Maximising operating efficiency
C. Reducing time required for statutory audit
D. Minimising audit risk
B. Maximising operating efficiency
Nothing to do with profitability, time is not really a reason to put control in (especially if that time has a big cost to it). Audit risk is for the auditors to manage.
The receivables ledger clerk checks the manually calculated batch total for a batch of sales invoices entered to he sales day book to the computer generated batch total
Which type of control activity is illustrated here?
Information processing
The sales director compares monthly budgeted sales figures to actual
Performance review
Performance reviews involve comparing projected figures with actual figures. That’s what we’ve got here!
Which two of the following are application controls?
A. Document counts
B. Digit verification
C. Passwords
D. Virus checks
Document counts
Digit verification
As a rule of thumb, general controls involve IT (i.e. passwords and virus checks), application controls are more manual
What is a control environment?
Control environment includes governance and management functions and attitudes, awareness and actions of those charged with governance and management concerning entity’s internal controls and its importance in the entity
Sets the tone of an organisation, influencing control consciousness of its people
What are the inherent limitations of an internal control system?
Human error
Possibility of staff colluding in fraud
One designed for normal routine transactions
May be expensive to implement
What are some examples of general controls?
Segregation of duties Back-up copies Virus checks Passwords Training Program libraries Controls over account deletions Back-up power source
What are some examples of application controls?
One-to-one checking
Review of master files
Record counts
Hash totals
