Chapter 11 - Appedix: systems risks and controls Flashcards
1
Q
Sales + distribution systems - risks associated with sales systems:
A
- Customers being allowed credits that are not genuine
- Goods being supplied to a poor credit risk
- Customers being invoiced for wrong amounts
- Failure to record sales completely in accounting records
- Goods being supplied to a fraudulent comp or location
- Debts being written off for inappropriate reasons
2
Q
Sales + distribution systems - controls for ordering and granting of credit:
A
- Segregation of duties between granting of credit and ordering functions
- Procedures for granting credit - obtaining trade references, credit checks, authorisation of terms by staff and regular review
- Controls for manual system orders - pre-numbered order forms, matching of order and dispatch notes
3
Q
Sales + distribution systems - controls over dispatching and invoiving:
A
- Dispatch only on sales order and examination and recording of goods outwards
- Customers should sign for deliveries on delivery notes
- Checks on goods returned
- Dispatch notes should be matched to invoices
- Other checks on invoicing = price lists, checks of pricing on individual invoices sequential numbering
4
Q
Sales + distribution systems - controls over recording, accounting and credit control:
A
- Different staff should be responsible for recording sales and dealing with issue of customer statements
- Cash receipts and remittance advices should be matched to sales invoices
- Review of dates of sales should take place to ensure cut-off is maintained and sales are recorded in the correct period
- Credit control = send statements to customers, reconcile sales ledger control account, review and follow-up on overdue accounts
- Bad debts to be written off should be authorised by senior managers
5
Q
Purchase + expenses system - Risks associated with purchases system:
A
- Payments being made without being properly authorised
- Payments being made for goods that are not received/ wrongly valued
- Goods being received without liabilities being recorded
- Suppliers’ accounts being improperly debited/ credited
- Goods being returned or credit being claimed and not being recorded
- Payments being made for duplicate/ inflated invoices
- Payments being made on basis of falsified documentation
- Suppliers being chosen for inappropriate reasons
6
Q
Purchase + expenses system - controls for ordering:
A
- Segregation of duties between requisitions and ordering
- Choice of suppliers determined by central purchasing policy
- Require evidence of requirements for purchase
- Orders only made on receipt of official order form
- Pre-numbering and safeguarding of order forms
- Orders not received should be followed up
7
Q
Purchase + expenses system - Controls for receipt of goods and invoices:
A
- Checking quality, quantity and condition
- Receipts should be recorded on pre-numbered GRN
- GRN’s should be compared with purchase orders
- Suppliers invoices should be checked to earlier documentation
- Procedures for returning goods to suppliers and obtaining credit notes
8
Q
Purchase + expenses system - controls for accounting for purchases
A
- Segregation of duties between accounting and other functions
- Maintenance of purchase ledger
- Statements received from suppliers should be reconciled with purchase ledger balances
- Purchase ledger balances should be reconciled with purchase ledger account
- Should be cut-off procedures to ensure purchases are recorded in right year
9
Q
The wages system - Risks associated with wages system:
A
- Payroll including invalid entries
- Payments being made to individuals which differ from names or amounts shown on payroll
- Failure to account for statutory tax deductions correctly
10
Q
What is zero-hours contracts?
A
People only working when they are required
11
Q
What is gig economy?
A
People only being paid for a specific job
12
Q
The wages system - controls for setting of wages and salaries:
A
- Maintenance of personnel records independent of payroll system
- Wages + salaries should be regularly reconciled to personnel records
- Records of hours worked should be regularly reviewed
- Changes and special arrangements should be fully recorded and changes authorised (e.g. engagement and discharge of employees, amendments to pay rates, overtime etc.)
13
Q
The wages system - controls over payment of wages/ salaries and deductions:
A
- Cash wages requires security arrangements which covers custody of pay packets and arrangements for safe transit to place of distribution
- Employees may only collect their own wages and must provide verification of identity
- Bank transfers should be compared to payroll and between payroll and wages and salaries ledger account
- Even small discrepancies should be investigated
- Establishment of adequate controls over calculations and authorising deductions
- Reconcile deductions
14
Q
The wages system - controls for recording of wages and salaries:
A
- Preparation of pay sheets should be delegated to a suitable person
- Segregation of duties
- Subsequent checks should be available where automatic wage-accounting systems are used
- Reconciliations with = previous weeks payroll, clock cards /timesheets /job card and costing analyses and production budgets
- Total of salaries should be reconciled with previous week/month or standard payroll
15
Q
Cash systems and loans - risks associated with cash and loans:
A
- Misappropriation of cash receipts
- Failure to record cash receipts and payments
- Payments being made without authorisation or supporting documentation
- Payments being made on basis of falsified documentation
16
Q
Cash systems and loans - Controls for cash at bank and in hand (receipts)
A
- Completeness of recording - without this, insufficient audit evidence will be available
- Segregation of duties - receiving and recording cash when it arrives in the post should not be same person responsible for banking it
- Recording of receipts by post - listing amounts received when post is opened and protection of cash and cheques (restrictive crossing)
- Restrictions on receipts of cash - only by cashiers or salespersons etc.
- Evidencing of receipt of cash - serially numbered receipt forms
- Reconciliations - especially agreement of cash collections with till rolls and receipts
- Any cash shortages and surpluses should be investigated
- Receipts should be banked daily and make-up and comparison of paying-in slips checked against initial receipt records and cash book
- EFTPOS (electronic funds transfer point of sale technology) could be used to decrease volume of cash and provide a permanent record of sales
17
Q
Cash systems and loans - controls for safeguarding bank accounts:
A
- Controls should cover supply and issue, restricting staff allowed to prepare cheques
- Safeguards over mechanically signed cheques/cheques carrying printed signatures
- Restrictions on issue of blank or bearer cheques
- Signed cheques should be dispatched promptly
18
Q
Cash systems and loans - controls for safeguarding cash accounts:
A
- Limitations on cash floats held
- Restrictions on access to cash registers and offices
- Custody of cash outside office hours
- Surprise cash counts and independent checks on cash floats
19
Q
Cash systems and loans - controls over cash at bank and in hand (payments)
A
- Segregation of duties - cashier should not be concerned with keeping or writing up books of account
- Cheque requisitions should be raised, supported by appropriate documentation and approved by senior staff
- Documentation should be cancelled by crossing/recording cheque number on requisition
- Signatories should have limitations on authority to specific amounts
- Payments should be recorded promptly in cash book and general and purchase ledgers
- Authorisation of expenditure, cancellation of vouchers and limits on cash disbursements
- Strict controls over cash advances to employees, IOU’s or cheque cashing
20
Q
Inventory system - Risks:
A
- Misappropriation of inventory
- Failure to record inventory movements
- Deterioration in condition and value of inventory due to age, obsolescence or poor inventory holding conditions
21
Q
Inventory system - controls over recording:
A
- Segregation of duties - responsibilities between those responsible for recording and those responsible for its custody
- Detailed record held and inventory receipts and issues
22
Q
Inventory system - controls over protection of inventory:
A
- Restriction of access to stores and controls over temperature etc. in which inventory is held
- Regular counts of inventory - carried out by persons other that stores function
- Reconciliation of inventory count record to book records and control accounts
23
Q
Inventory system - control over valuation of inventory:
A
- Check that calculations are correct
* Procedures to deal with writing down slow moving, damaged and obsolete inventory
24
Q
Inventory system - controls for inventory holding:
A
- Maximum and minimum inventory levels
* Reorder quantities and levels
25
Revenue and capital expenditure - risks:
* Asset acquisitions and disposals not being authorised
* Asset acquisitions and disposals not being recorded
* Asset records including items which have been disposed of, are of negligible value or do not exist
* Misappropriation of assets
* Assets being used for private benefit
* Deterioration in condition or obsolescence of assets
* Depreciation being charged at too high or too low a rate
* Depreciation being calculated incorrectly
* Income form assets not being received or recorded
* Revenue and capital expenditure being accounted for incorrectly
26
Revenue and capital expenditure - controls over authorisation:
* Controls over purchases also relevant here
| * Authorisation of orders and checking of condition when goods received
27
Revenue and capital expenditure - controls over security:
* Restriction of access
* Controls over environmental conditions
* Marking ownership of assets
* Maintain a non-current asset register
* Non-current asset register should be regularly reconciled to general ledger
28
Revenue and capital expenditure - controls over valuations:
* Senior, qualified staff should judge what appropriate depreciation rates are
* Revaluations - specification of qualifications of the valuer and scope and objective of valuation
* Need for write down of assets should be supported by evidence of loss in value
* Write-downs should be authorised by managers
29
Revenue and capital expenditure - controls for recording:
* Asset register is key recording control
* General ledger should be regularly reconciled to asset register
* Staff with appropriate knowledge should maintain sensitive codes in general ledger to confirm revenue and capital expenditure is being allocated correctly
* Capital budgets should be prepared, actual expenditure compared with budgets and differences investigated
30
Logistics risk:
* Inventory is not being delivered at the right time to the right place in the right condition
* Inventory is stolen
* Poor-quality products result in lost sales or damage or injury
* Business is interrupted
31
Logistics controls:
* Controls over safeguarding of inventory
* Controls ensuring inventory is available to meet business requirements
* Adequate planning and forecasting systems
* Detailed analysis of volume requirements
* Availability of alternative facilities at short notice
* Sufficient vehicles to transport inventory
32
Procurement risks:
* Goods not available when required
* Org pays too much for goods
* Employees or suppliers defraud the org
33
Procurement controls:
* Rigorous tendering process = Ensure that goods are available when required and that org pays reasonable prices for goods/ services
* Requirements for goods/ service should be put in writing
* Auditor should review adequacy f tendering arrangements and check that invoice details can be traced back to written acquisitions
34
Marketing risks:
* Customer requirements are not taken into account
* Customers do not know about products
* Prices are not competitive
* Goods are prices at too low a level, with promotion considerations resulting in excessive discounts
35
Marketing controls:
* Controls + audit required to ensure process is managed efficiently, info is freely available and risks are being managed correctly
* Should be rigorous requirements for market research
* Monitor competitor prices and activity
* Sales against budget
* Marketing mix should be analysed using return on marketing investment which monitors the success of various media and campaigns
* Auditors should assess whether adequate research appears to have been carried out, adequacy of decision-making processes
* Auditors should also review terms and conditions to ensure they comply with company policy
36
HR risk:
* Inadequate staffing
* Over reliance on certain key personnel
* Excessive staff turnover
* Staff being paid the wrong amounts
* Correct deduction not being made for taxes
* Staff expenses not being properly documented
* Staff expenses being unauthorised or excessive
* Org reimbursing staff for private expenditure
* Industrial action disrupting the org
* Org being subject to actions for wrongful dismissal
* Failing to comply with employment laws
37
HR controls:
* Long-term human requirement plans to ensure long-term succession planning
* Benchmarking salary against market
* Appraising staff performance
* Providing adequate training
* HR managers should receive training in employment law
* Ensure company policies are maintained and info is freely available
* Review all relevant internal records, appraisal and training records and long-term HR plans
* Internal auditors should consider HR issues on range of other operational audits (e.g. whether department is staffed with staff of sufficient experience)
38
R+D risks:
* R+D effort wasted on projects that will provide no benefits or are not in line with corporate strategy
* Org's do not undertake enough R+D, leaving them at risk of being uncompetitive or irrelevant
* Resources are wasted on duplicated projects
* Projects do not deliver planned benefits,are late or over budget
* Loss of data interrupts R+D
39
R+D controls:
* Controls must ensure R+D is properly planned, budgeted, monitored and reported
* Comply with internal standards and relevant legislation
* R+D strategy must be decided and reviewed by the board
* Activities should be co-ordinated centrally
* Follow common project methodology
* Progress on projects should be reported regularly
* Post-implementation reviews
* Auditors should consider adequacy of org guidelines or R+D projects and test projects to see if they were following guidelines
* Auditors should check that results of R+D have been regularly communicated to management
* Auditors should review results of post-implementation reviews and confirm that points arising have been actioned
40
Post-completion audits risks:
* Capital expenditure on a project is greater than expected
* Project has failed to deliver the anticipated benefits
* Excessive resources have been utilised on developing the project
41
Post-completion audit controls:
* System for approving and developing new investments
* Post-completion auditing is partly an audit of controls including weaknesses in budgeting and forecasting system
* Also examines performance of management, using principles of responsibility accounting
