week nine Flashcards
what procedures are used to document systems?
-speaking to relevant staff
-observing application fo controls
-walk through test
-inspections of prior year file
-inspecting documents
what are the advantages/disadvantage of narrative notes?
advantage: easy to understand
disadvantage: hard t identify missing controls
what are the advantages/disadvantage of flow charts?
+: easy to view entire system
-: hard to change
what are the advantages/disadvantage of internal control questionnaire?
+: quick to prepare
-: controls may be overstated
what are the advantages/disadvantage of internal control evalaution?
+: controls are less likely to be overstated.
-:checklist may not be relevant with specific clients.
what does testing the system involve?
a test that involves the auditor obtaining evidence to show that implemented controls set by the client are working efficiently:
-observation
-inspection of performance control document
-using test data.
explain the sales system:
-credit check performed: inspect a sample of customer files to ensure credit checks have been an
-customer signs the good receive note: inspect the good received notes from a sample of sale:
-invoices match the good received notes: match a sample of invoices to their corresponding receive notes
-sales invoices matches companies price list: inspect a sample of price lists
-discounts must be authorised: inspect a sample of sales where discounts have been authorised
-customers monthly statements: inspect a sample of customers monthly statements
-sales ledger receipt are checked to invoice before processing: check a sample of receipts and match them with invoices
what is the purchase testing for an audit?
-order placed: inspect a sample of purchases and ensure they have been authorised.
-goods received: inspect a sample of delivery notes and ensure quality and quantity is good.
-the invoices received match the GRN: inspect the sample of invoices and check k if they match GRN.
-batch control: check if the number of invoices match the batch.
-supplier statement reconciliation have been performed: for a sample of suppliers check if their monthly statements have been performed.
what is the payroll testing for audit?
-supervision of clock cards: observe the use and supervision of clock card.
-wages are calculated by the system: for a sample of week check if managers checks have been placed
-the accountant reviews if the total figures add up: take a sample of weeks and check if they have been signed by the accountant.
-payroll payments are signed by 2 directors: for a sample of week, check if directors have signed off the payroll.
-bank statements are checked for any accrued wages: check bank statements for any anomalies
-completion and authorisation of standing data forms: for a sample of new employees, ensure that standing data forms have been authorised by an appropriate managers.
what are the functions of a well functioning audit team?
-well resourced
-chief auditor appointed by the audit committee
-work plan agreed by the committee
-no limitation on scope
-independent and objective
limitation of internal audits:
-internal auditors may want to please their boss so they are less likely to report issues.
-internal auditors that have been there for a long time may have a familiarity threat
what are the advantages of outsourcing internal audits?
-greater expertise
-outside firms are held accountable
-great range of experiences
-professional firms will be independent
-access to new market software.
what are the disadvantages of outsourcing an internal audit?
-high fees
-loss of flexibility
-professional auditors may lack knowledge of a company’s system
how are audit procedures written?
they should consist of an action applied to a source to achieve an objective.
a well worded audit procedure would be ‘collect a sample of assets from the non-current asset register physically inspect them to verify them.
what are the financial statement assertions?
-occurrence: have transaction occurred related to the entity.
-completeness: are all transactions recorded.
-accuracy: have they been recorded properly
-cut off: have they been recorded in the correct period.
-classification: have accounts been recorded in the correct a/c.
-presentation:are transactions and disclosures adequate?
