Task 3: Evaluating systems & procedures

Question 1

Looking at weanesses

In left box ‘identify AND explain’
..should probably say ‘shows lack of .. (some control)

Answer 1

Make sure you explain the weakness 
Keep saying 'so what'
eg. Petty cash is left in office
'so what'
Might get stolen
'so what'
Hits our profit.

Question 2

This tests accounting systems and controls. Go straight to the requirements without reading the scenario so that when you do go through the scenario you know what you are looking for. Look out for words like, “should”, “sometimes” and “however” which may suggest that control does not always happen. Be aware of controls that you would expect to happen but are not described in the scenario – that would be a weakness. Explain the impact on various stakeholders.

Answer 2

.

Question 3

When looking at the problems caused to the biz by weaknesses …

Answer 3

don’t just think financial, auditing etc…

Remember quality of service, reputation..

think H&S (eg having one person counting cash on own, might be risk target)

Question 4

6 C’s ?

.. that errors and fraud and inefficiencies lead to..

Answer 4

Customer (Reputation, satisfaction, service, sustainable)

Cashflow

Cost (Loss of money / profit / TIME / assets)

Correctness (of management reports and FSs)

Cover (for holidays/sickness .. rotation)

Compliance (H&S, tax)

Question 5

Remember use of ‘Management’ controls (soapspam)

KPIs and ratios

Answer 5

Could detect fraud / theft (eg material wastage goes up because being stolen and sold)

OR !!!

Could be a problem with inventory bookings.

Question 6

Remember use of ‘Management’ controls (soapspam)

KPIs and ratios

Answer 6

Ratios
If given ratio change and asked what weakness could cause … think about numerator/denominator and think
about what could cause

EG GPM%

1. Sales may not be recording properly (delib or error)
2. Costs not being recorded correctly (eg. asset purchase recorded as COS)
3. THEN if correct must be other reasons. Eg Costs really have gone up but increase hasn’t been passed on to customers.

Question 7

Fraud is normally 1 of 3

Answer 7

Theft of property, money or commercial information

Falsification of records so money is diverted (eg fiddling payroll) false accounting

bribery & deception

Collusion (eg set up between employee and an outsider eg ficticious supplier)

Question 8

Fraud has financial impact
also non-financial

Loss of reputation (future sales lost hard to quantify)

Loss of employee relations. (who might have ‘added value’ as part of the biz) choose to work elsewhere

Answer 8

.

Question 9

Think about
out of date procedures fallen into disuse
Complacency … leading to lack of checks

Answer 9

.

Question 10

Strong internal control system ensures 5 things

needs supported by strong ethical values

Answer 10

Liabilities are identified & recorded

Assets are protected

Fraud risk is minimised

Errors, missing items minimised

Financial records are accurate & up to date

Question 11

fraud definition

Answer 11

The use of deception 
with the intention
of gaining an advantage
or avoiding an obligation
or causing a loss to someone or an org.

Question 12

if detecting fraud from accounting info ratios…

Answer 12

look for theft of cash sales esp if no downturn is mentioned