Module 6 Evaluating systems of internal control

Question 1

What are the 5 components of a system of internal control?

Answer 1

C- Control activities
R - Risk assessment process
I - Information systems
M - Monitoring of controls
E - control Environment

Question 2

What are the limitations of internal controls? And what is the acronym to remember it?

Answer 2

RC CHUM
- Relevance / obsolescence
- Cost
- Collusion
- Human error
- Unusual/infrequent transactions
- Management override

Question 3

What are some examples of indirect controls?

Answer 3

• A code of ethics
• An employee handbook
• Performance review policies
• Employee induction policies
• Training of staff
• A whistle blow hotline

Question 4

Control activities can be classified into 5 categories:

Answer 4

1) Authorisation and approvals
2) Reconciliations
3) Verification
4) Segregation of duties
5) Physical and logical controls

Question 5

IT general controls fall into 4 areas:
And what is the acronym to remember it?

Answer 5

APOC
1) Access to program and data
2) Program changes and development
3) computer Operations
4) Continuity of operations

Question 6

Process mining is another ADA tool which allows

Answer 6

a client to process to be mapped, where the data is available. This allows the auditor to understand the key processes at the client as well as identify any deviations that exist in the process.

Question 7

What is a test of controls?

Answer 7

Audit procedures performed to determine whether the control activities operated as documented throughout the period under review.

Question 8

What techniques can tests of control use?

Answer 8

• Enquiring
• Inspection
• Observing
• Reperformance

Question 9

The phases of a sale cycle are:

Answer 9

1) Customer places order
2) Order fulfilled and despatched
3) Customer invoiced for goods
4) Customer pays for goods
5) Good returned (may replace phase 4)
6) Credit note issued/ refund given to customer

Question 10

The phases of a Purchase cycle are:

Answer 10

1) Place order
2) Receive goods
3) Invoice received
4) Payment for goods
5) Return goods (may replace phase 4)
6) Credit note/ refund received

Question 11

The phases of the stock cycle are:

Answer 11

1) Receive goods
2) Stock movements
3) Stock holding
4) Stock valuation
5) Order fulfilled and despatched

Question 12

What is a test count?

Answer 12

Test counts involve the reperformance of the entity’s counts to determine whether the entity is counting the quantities accurately.

Question 13

The phases of the fixed asset cycle are:

Answer 13

1) Identify the need for an asset
2) Seek management or board approval
3) Order asset
4) Receive asset/ transfer ownership
5) Receive invoice
6) Make payment

Question 14

The phases of the payroll cycle are:

Answer 14

1) Work done and time recorded
2) Calculation of payroll liability
3) Payment of payroll liability

Question 15

The phases of monthly financial reporting are:

Answer 15

1) Month-end journals
2) Month end reconciliations
3) Production of management accounts
4) Production of financial statements

Question 16

What is internal audit?

Answer 16

Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organisations operation

Question 17

The key elements of an internal audit function are as follows:

Answer 17

I - Independent (segregation of duties)
M - It objectively Measures and evaluates

W- takes place Within the organisation
I - Integral part of the framework of business controls
S - Service to all levels of the organisation
E - Looks at the Effectiveness and Efficiency of operations

Question 18

To be effective the internal audit function should consider the following aspects:

Answer 18

P- the internal audit Process
A- the Role of the Audit committee
R - Resource and competence;
I- Independence;
S - position and Status of internal audit
S - internal auditing Standards