Lecture 4 Flashcards
What are the five components of internal control?
- Control Environment
- Risk Assessment
- Control Activities
- Information and Communication
- Monitoring Activities
These components are essential for effective internal control systems.
What is the difference between processes and controls?
Processes make things happen; controls establish that processes are working as they should.
Understanding this distinction is crucial for effective internal control.
What are the main account balances impacted by the Revenue Process?
- Revenue
- Receivables/Trade Debtors
- Bad Debt Expense
- Stock/Inventory
- Bank and Cash
These balances are critical for understanding the financial implications of the revenue cycle.
What are the financial statement assertions related to the Revenue Process?
- Existence/Occurrence
- Rights and Obligations
- Completeness
- Accuracy, Valuation, and Allocation
- Classification
- Cut-off
- Presentation
These assertions help assess the risk of material misstatement.
True or False: Controls can be both manual and automated.
True
This flexibility allows organizations to tailor controls to their specific needs.
What is a common fraud scheme in the Revenue Cycle?
- Channel stuffing
- Goods sold at low price
- Not all goods invoiced
- Debts not collected and written off
- Not all cash received banked
Understanding these schemes is important for developing effective controls.
What are the key points of the Purchases Process?
- Occurrence
- Existence
- Cost of sales
- Payables/Trade Creditors
- Stock/Inventory
These points highlight the essential aspects of managing purchases effectively.
What is the importance of a ‘three-way match’ in the Purchases System?
It ensures that the purchase order, the invoice, and the receipt of goods match before payment is made.
This control helps to prevent overpayments and fraud.
What are the main account balances impacted by the Payroll Process?
- Payroll Taxes
- PAYE/NIC Creditors
- Staff Costs
- Other Wages and Benefits Accruals
- Bank and Cash
These balances are essential for accurate payroll accounting.
What is a major risk in the Payroll Process?
Overpayment and ghost employees
This risk highlights the need for strict controls and monitoring.
Fill in the blank: The objective of the Payroll Process is to ensure that only _______ are paid contracted amounts for work carried out.
[bona fide employees]
Ensuring the legitimacy of employees is critical to prevent fraud.
What is the role of ISA 265 in the audit process?
It focuses on communicating deficiencies in internal control to those charged with governance and management.
This communication is vital for improving organizational controls.
What should management do to mitigate risks related to despatch and invoicing?
Implement controls such as segregation of duties and regular audits.
These controls can help prevent fraud and errors.
What are high-level risks in the Purchases System?
- Occurrence of services
- Existence of goods
- Overpayment for goods
Identifying these risks is essential for effective internal control.
What is the importance of segregation of duties in payroll?
It prevents fraud by ensuring that no single employee has control over all aspects of payroll processing.
This control is critical for maintaining the integrity of employee payments.
