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Auditing > Topic 7 - Test of Controls > Flashcards

Topic 7 - Test of Controls Flashcards

1
Q

Where do Auditor places greatest focus?

A

On areas where risk of material misstatement is highest.

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2
Q

How do auditors evaluate the risk of material misstatement?

A

■ Determine Inherent risk

■ Make preliminary assessment of Control Risk

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3
Q

If is control risk assessed as high, what must auditors do?

A

Perform planned and additional substantive procedures

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4
Q

If is control risk assessed as low, what must auditors do?

assume TOC has no deviations (2)

A

1) Perform TOC to support C R assessment

2) If no deviations found Indicating less reliance, perform planned substantive procedures

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5
Q

If is control risk assessed as low, what must auditors do?

Assume TOC has Deviations

A

1) Perform TOC to support C R assessment
2) If any deviations found Indicating less reliance, determine if there are any compensating controls?
3) If compensating controls exist then perform planned substantive procedures
4) If compensating controls do not exist then perform planned and additional substantive procedures

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6
Q

What are Test of Controls (TOC)?

A

Audit procedures designed to evaluate the effectiveness of controls in preventing, or detecting and correcting, material misstatements.

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7
Q

Even if controls are preformed, what question must the auditor ask?

A

Was the particular control performed effectively?

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8
Q

What are the three considerations when planning the Scope of TOCs?

A

■ Nature of the tests
■ Timing of the testing
■ Extent of testing

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9
Q

What does the nature of a Test of a Control outline? what are the 4 aspects?

A

Test must be appropriate for the internal control being tested.

■ Identify the internal control
■ Determine the control objective
■ Specify the assertion
■ Specify a test of the internal control

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10
Q

What are six examples of Primary Internal Controls?

A 
■ Segregation of duties
■ Control over source documents
■ Controls information system
■ Approvals and reconciliations
■ Independent checks,
■ Document matching/ reconciliations
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11
Q

List 5 test of Controls-Procedures?

A 
■ Inquiry
■ Inspection
■ Observation
■ Reperformance
■ Use of test data techniques
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12
Q

what are the 5 tests of Controls-Assertions?

A 
■ Cut-off
■ Classification
■ Completeness 
■ Occurrence
■ Accuracy
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13
Q

Why is timing of Tests of Controls important?

A

Consider the Remaining Period, before the end of financial year and final TOCs

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14
Q

what three things must be taken into consideration when assessing the extent of Tests of Controls?

A

■ nature of the control
■ Sample size
■ More than one source of evidence

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15
Q

How would you test occurrence of authorisation?

A

Select sample and inspect for evidence of authorisation/ approval

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16
Q

If you were to test Prenumbered documents and sequence accounted for, by selecting a sample and inspecting for evidence of sequence check, what assertion would you be testing for?

A

Completeness

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17
Q

How would you test for accuracy in program controls?

A

Test data technique to test Program control

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18
Q

What is an example of control for Classification?

A

Account Coding

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19
Q

How would you test the Cut-off assertion where the control is an independent check?

A

establish that the Independent check was undertaken

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20
Q

Which three aspects are auditors interested in establishing when testing controls?

A
  • existence
  • effectiveness
  • continuity
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21
Q

For Auditing Controls over Revenues, Receivables and Receipts what are the two key Processes? how many sub processes in each? which accounts do they affect?

A

￭Sales: 4 processes
￭Receipt of cash: 4 processes

Accounts:
￭Sales
￭Allowances
￭Provision for doubtful debts

22
Q

What are the four Control Activities for Sales?

A
  • separation of duties
  • proper authorisation
  • adequate docs and records (doc matching
  • Independent checks on performance
23
Q

list five TOC for Sales

A 
■ Recorded sales occurred (shipments made/not recorded more than once/customers exist)
■ All Sales are recorded
■ Sales are accurately recorded
■ Sales are properly classified
■ Sales are recorded on the correct date
24
Q

For Control Objective: “Sell only to customers who have the ability to pay for the goods/services supplied” what is the internal control, assertion and TOC?

A

-Internal Control: Credit approval must be undertaken before
sales are processed.
-Assertion: Occurrence.
-TOC - sample sales orders and inspect for initials from manager

25
Q

For Control Objective: Ensure all shipments are recorded, what is the internal control, assertion and TOC?

A

-Assertion: Completeness
-Internal Control: Use of pre-numbered documents and
sequence is accounted for.
-TOC: The auditor inspected filed Shipping Notes to find tick that sequence check preformed

26
Q

For Control Objective: Ensure accuracy of transaction processing
what is the internal control, assertion and TOC?

A

-Internal Control: check
invoice quantity, price, terms with supporting documentation.
-Assertion: Accuracy.
-TOC inspects a sample of entries in the sales
journal and reviews for evidence that the corresponding
invoice has supporting docs

27
Q

For Control Objective: Ensure sales are recorded in correct period what is the internal control, assertion and TOC?

A

-Internal Control: Written procedures and independent checks undertaken.
-Assertion: Cut-off.
-TOC: The auditor ascertains (inquiry), that written procedures
were followed and independent checks carried out.

28
Q

For Control Objective: Ensure transactions are properly classified what is the internal control, assertion and TOC?

A

-Internal Control: Appropriate account codings on sales
documents.
-Assertion: Classification.
-TOC: The auditor reviews (inspects) approvals of account
codings.

29
Q

For Control Objective: Recorded cash receipts are for collections
from sales to customers of the entity what is the internal control, assertion and TOC?

A

-Internal Control: Cash receipts matched to sales invoices.
-Assertion: Occurrence
-TOC: The auditor selected a sample of entries in the Cash
Receipts Journal and reviewed evidence of matching to
specific sales invoices

30
Q

For Control Objective: Ensure that all cash receipts are recorded
and deposited what is the internal control, assertion and TOC?

A
  • Internal Control: Segregation of duties
  • Assertion: Completeness
  • TOC: The auditor observes process to ensure steps are undertaken independently of the cashier
31
Q

For Control Objective: Accurate processing of cash receipts what is the internal control, assertion and TOC?

A

-Internal Control: Bank accounts are reconciled promptly with
cash record and general ledger.
-Assertion: Accuracy.
-TOC: The auditor inspects client’s bank reconciliations for
evidence of performance (tick).

32
Q

when Auditing the Client’s Controls over

Expenditures, Payables and Disbursements what are the two key processes? how many sub processes do they each have?

A

￭Purchasing: 6 processes

￭Disbursing: 2 processes

33
Q

what is the Voucher System?

A

when your pre-numbered supplier invoices/receiving reports/POs get entered into the voucher register and cheque register

34
Q

what are the three Primary Control Activities for

the Expenditure Cycle?

A
  • Segregation of duties
  • Control over source documents
  • Checks, approvals and reconciliations
35
Q

list three duties that should be segregated

A
  • purchasing
  • receiving
  • accounting
  • accessing cash
36
Q

lists three source docs

A
  • POs
  • vouchers
  • Cheques
  • receiving reports
37
Q

list three processes in Checks, approvals and reconciliations?

A
  • Comparison of Supporting Documents
  • Recomputation Invoices
  • Approvals
38
Q

For Control Objective: Purchases are for goods and services

required by the entity, what is the internal control, assertion and TOC?

A

-Internal Control: Purchases must be approved by Manager.
-Assertion: Occurrence.
-TOC: The auditor selects a sample of purchase orders and
checks for evidence that they were approved (initialled
by manager).

39
Q

For Control Objective: Recoded purchases are bona fide, what is the internal control, assertion and TOC?

A

-Internal Control: Comparison of Purchase Order, Receiving
Report and Sales Invoice before recording liability.
-Assertion: Occurrence.
-TOC: The auditor inspected sample of entries in the
purchases journal and vouched to voucher packs to
for evidence of reconciliation.

40
Q

For Control Objective: Ensure that all purchases are recorded, what is the internal control, assertion and TOC?

A

-Internal Control: Use of prenumbered documents and a
sequence is accounted for.
-Assertion: Completeness
-TOC: The auditor inspected filed Receiving Notes and reviewed
for evidence (tick) that a sequence of prenumbered
Receiving Notes was account for

41
Q

For Control Objective: Purchases are correctly classified, what is the internal control, assertion and TOC?

A

-Internal Control: Independent review of recording of purchases.
-Assertion: Classification
-TOC: The auditor inspected a sample of entries in the
Purchases Journal for evidence of independent review

42
Q

For Control Objective: Recorded cash payments are for G&S that were authorised and received, what is the internal control, assertion and TOC?

A

Internal Control: Cheques prepared only when supporting
documents matched and approved.
Assertion: Occurrence.
TOC: The auditor selected a sample of transactions from the
Cash Payments Journal and inspected supporting
documentation for approval

43
Q

For Control Objective: All cash payments are recorded, what is the internal control, assertion and TOC?

A

Internal Control: Presented cheques and electronic payments
listed on bank statement are reconciled to
accounting record.
Assertion: Completeness
TOC: The auditor inspected the client’s Bank Statement for
evidence of reconciliation

44
Q

For Control Objective: Cash payments are accurately recorded, what is the internal control, assertion and TOC?

A

Internal Control: Cash payments verified (independent review)
Assertion: Accuracy.
TOC: The auditor inspected a sample of entries in the Cash
Payments Journal for evidence of internal verification

45
Q

what are 4 reasons for Potential Misstatements?

A
  • fraud
  • kickbacks
  • illegal acts
  • unauthorised executive perks (mis-use of credit card)
46
Q

What are the Three stages in audit sampling?

A
  • plan the sample
  • select the sample
  • test and evaluate the sample
47
Q

What are the 3 things that must be specified by the auditor when planning the sample?

A
  • what are the audit objectives
  • Identify the population and the sampling unit
  • Determine the sample size
48
Q

What are three methods of determining the sample size?

A

Statistical; Judgment or Haphazard.

49
Q

what is the formula for Calculating the sample interval?

A

( Last S O # – First S O # +1) / sample size

50
Q

what is the formula for Calculating the sample deviation rate?

A

(No. errors x 100%)/ n

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