Systems and controls Flashcards
What are the 5 components of internal controls
CRIME
- Control environment
- Entity’s risk assessment process
- Information system and communication
- Control activities
- Monitoring of controls
What is the control environment
The attitude and philosophy of he management with regard to control
Explain the entity’s risk assessment process
A more robust risk assessment process will reduce the risk of misstatement
Explain the information system and communication
The auditor should obtain an understanding of the information system
What are the control activities
Authorisation
Reconciliation
Verification
Physical controls
Segregation of duties
Explain monitoring of controls
Management must monitor controls to ensure that they are operating and that they are effective
Examples to ascertain the system
Options:
Examine previous auditors work
Clients own documentation
Interview client staff
Trace a transaction through a walkthrough
Observe procedures
Examples to document the system
Options:
Narrative notes
Organisation chart
Internal control questionnaire
Flowcharts
Give 3 objectives of a sales system
Options:
Goods are only supplied to customers who pay promptly
Orders are dispatched promptly
Only valid sales are recorded
Al sales and related receivables are recorded
Revenue is recorded in the period to which it relates
Sales are recorded accurately
Given 3 objectives of a purchase system
Options:
All purchases are of the appropriate quality and price
Only necessary goods/services are procured
All purchases and related payables are recorded
Expenditure s recorded in the period to which it relates
Expenditure is recorded accurately
Give 3 objectives of a payroll system
Options:
Only genuine employees are paid
Employees are only paid for the work done
Employees are paid at the correct rates
Gross pay is calculated correctly and recorded accurately
Net pay is calculated and recorded accurately
Correct amounts owed are recorded and paid to the taxation authorities
Give 3 objectives of a cash cycle
Options:
Petty cash levels are kept to a minimum
Payments can only be made for legitimate business expenditure
Cash and chequebooks are safeguarded
Receipts are banked on a timely basis
Cash movements are recorded on a timely basis
Give 3 objectives of an inventory system
Options:
Inventory levels meet the needs of production
Inventory levels are not excessive
Inventory is safeguarded from theft, loss or damage
Inventory movements are recorded on a timely basis
All inventory is recorded
Inventory is valued at the lower of cost and NRV
What does the covering letter state
Covers deficiencies identified during audit work
For sole use of the company
No disclosure to third parties without agreement
No responsibility assumed to any other parties
