Module 3

Question 1

What is a business process?

Answer 1

Anything a business will put in place to try to achieve its objectives

Question 2

What is Business risk?

Answer 2

The threat that an action or event will adversely affect the organisations ability to achieve its objectives

Question 3

What 3 things do directors implement internal control to provide assurance over?

Answer 3

The reliability of financial reporting

The effectiveness and efficiency of operations

Compliance with applicable laws and regulations

Question 4

What are the five components of internal control?

Answer 4

Control activities 
Risk assessment process
Information systems 
Monitoring of controls
control Environment

CRIME

Question 5

What is the control environment?

Answer 5

‘Tone at the top’

Overall attitude, awareness and actions of directors

Question 6

What is risk assessment process?

Answer 6

The process by which business risks are identified and managed

Question 7

What are information systems?

Answer 7

Used to record financial transactions and non-financial data

Question 8

What are control activities?

Answer 8

Policies and procedures that management put in place to ensure their directives are carried out

Question 9

What are monitoring of controls?

Answer 9

Ongoing assessment by management of the performance of the internal control systems

Question 10

Control activities can be classified into what 5 categories?

Answer 10

Authorisation controls
Physical controls 
Information processing controls
Performance reviews
Segregation of duties

APIPS

Question 11

Authorisation controls ensure that what?

Answer 11

Transactions are authorised by personnel acting within the scope of their authority

Question 12

Performance review controls allow?

Answer 12

Management to review information to highlight any exceptions or controls that haven’t operated effectively

Question 13

Information processing controls can be broken down into what subcategories?

Answer 13

IT general controls

Application controls:
IT application controls
Manual application controls

Question 14

What are IT general controls?

Answer 14

Operate over the whole IT system

Support effective functioning of app controls by ensuring continuing function of whole item system

Question 15

What are application controls?

Answer 15

Operate at transaction level and apply to the processing of specific types of transactions

Ensure genuine, accurate and complete

Can involve both manual and automatic

Question 16

What are physical controls?

Answer 16

Limit access to assets and important records

Question 17

What is segregation of duties?

Answer 17

Implemented to mitigate risk that individuals are out in a position that they would be able to carry out fraud or error then conceal it

So no one has too much control

Question 18

What are entity (soft) level controls?

Answer 18

Those that help establish the tone and culture of an organisation

E.g code of ethics, values, employee handbook, training

Question 19

What are the limitations of internal control systems?

Answer 19

Relevancy/Obsolescence 
Cost
Collusion
Human error
Unusual/Infrequent transactions
Management override 

RC CHUM

Question 20

What are the key accounting cycles?

Answer 20

Sales
Purchases
Stock
Payroll
Fixed Assets 
Monthly reporting process

Question 21

What are the steps to design an accounting process?

Answer 21

1. Break into phases
2. Consider objective last
3. Relevant documentation
4. What can go wrong (risks)
5. Design controls to address these

Question 22

What are the key pieces of documentation found in accounting processes?

Answer 22

Purchase requisition
Purchase order 
Sales order 
Goods despatch note
Goods received note
Invoice
Remittance advice
Credit note

Question 23

What is a purchase requisition?

Answer 23

Raised by user department to request financing to purchase goods/services

Internal- raised by user and forwarded to budget holder for approval, copy then forwarded to purchase dep. in order for PO to be raised

Question 24

What is a purchase order?

Answer 24

Raised by purchaser to send to seller to request purchases of goods or services

External- prepared by purchasing department with copy sent to supplier

Question 25

What is a sales order?

Answer 25

Raised by seller of ordered goods to record the receipt of a purchase order form a customer

Internal- raises by sales team

Question 26

What is a goods despatch note?

Answer 26

Internal form completed by despatcher confirming goods sent

Prepared by warehouse with copy sent to finance to initiate invoice prep

Question 27

What is a goods received note?

Answer 27

Internal form completed by warehouse confirming spec of goods received

Question 28

What is an invoice?

Answer 28

Document sent by seller to the buyer detailing amount due, payment dates etc

Question 29

What is remittance advice?

Answer 29

Submitted by buyer to seller in association with a payment that details nature and purpose.

Allows seller to match the payment against invoice
Fill in tell supplier which invoice paying off

Question 30

What is a credit note?

Answer 30

Sent by a seller to a customer to cancel an invoice charged

Question 31

What are the phases of the sale cycle?

Answer 31

1. Customer placed order (sales)
2. Order fulfilled and despatched (warehouse)
3. Customer invoiced for goods (Finance)
4. Customer pays (Finance)
   Returns:
5. Goods returned (warehouse)
6. Credit note issued/refund given (Finance)

Question 32

Example of objectives of phase 1 of sales cycle

Answer 32

Orders only accepted from credit-worthy customers
All orders recorded 
Orders recorded accurately 
Orders accepted can be fulfilled 
Orders are accepted for the best price

Question 33

What are the phases of the purchases cycle?

Answer 33

1. Place order (purchasing)
2. Receive goods (warehouse)
3. Invoice received (Finance)
4. Payment for goods (Finance)
   Returns
5. Return goods (warehouse)
6. Credit note/refund received (Finance)