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AAT Level 4 > Internal Controls > Flashcards

Internal Controls Flashcards

1
Q

Financial Statements - Full Set of Statutory Accounts

A

Statement of comprehensive income (P&L)
Statement of financial position
Statement of changes in equity
Statement of cashflows
Notes to the accounts

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2
Q

Statement of comprehensive income (P&L)

A

Shows performance for a period of time, resulting in profit or loss

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3
Q

Statement of financial position

A

Shows assets, liabilities & equity at a point in time
Shows how much the company owns or owes

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4
Q

Statement of changes in equity

A

Detailed statement of the movement in equity section (financed by section)

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5
Q

Statement of cashflows

A

Real cash movement
Story which tells the story of bank balance movement

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6
Q

Notes to the accounts

A

Details policies used (depreciation)
Details any irregular events (lost inventory due to fires, court case, large bad debt)

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7
Q

Internal Stakeholders

A

Staff - working conditions, development, workload
Directors - performance, bonuses
Credit control - receivable days, performance
Management accountant - to plan budgets & variances

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8
Q

External Stakeholders

A

Bank - they want you to bank with them
Suppliers - quantity of supply, payable days
Investors - current & potential investors, invest more or sell?
HMRC - make sure they are getting right amount of tax

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9
Q

Treasury Department

A

Invest on behalf of the company
Ensure money is in the correct places / accounts
Managing cashflow
Lending on behalf of the company
Monitor & plan for currency / interest rates

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10
Q

Internal Audit

A

Work for the company
Optional
Checks processes & procedures
Addresses any issues

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11
Q

External Audit

A

External company coming in
Legally required if the company is large
Checks accuracy of accounts
Reports on the processes
End result - Audit report, gives conclusion of how good the accounts are

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12
Q

8 Control Activities

A

Supervision
Personnel
Authorisation & Approval
Management
Segregation of Duties
Organisational Structure
Accounting & Mathematical checks
Physical

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13
Q

Control Activities: Supervision

A

Supervisors
CCTV
Remote computer access

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14
Q

Control Activities: Personnel

A

Getting right people for the right job
Qualifications
DBS
References
Criminal conviction check

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15
Q

Control Activities: Authorisation & Approval

A

Who can approve?
Credit limits
Method of approval
Number of people to authorise

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16
Q

Control Activities: Management

A

Different levels and responsibilities of managers

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17
Q

Control Activities: Segregation of Duties

A

Break down a task to have more people involved
Reduces error / fraud
Potential of collusion - 2 or more people working together to commit fraud

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18
Q

Control Activities: Accounting & Mathematical Checks

A

Bank reconciliation
Debtors / Credits rec
Auto calc for VAT
Software with date checks, duplicate checks, credit limit checks

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19
Q

Control Activities: Physical

A

Locked doors
FOB access
Passwords
Safe
Photo ID

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20
Q

Receivable Days

A

Trade receivables / Revenue (only credit) X 365
= x days

Average number of days for credit customers to pay
Can be affected by: discounts, credit terms, bad debts, credit control department
Aim to be as small as possible / on target

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21
Q

Payable Days

A

Trade payables / cost of sales X 365
= x days

If no cost of sales, use PURCHASES

Average number of days to pay credit suppliers
If bigger: improve cash flow, possible late fees
If smaller: better supplier relationships, better terms, discounts, increased credit rating

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22
Q

Inventory Days

A

Average inventory / cost of sales X 365
= x days
Use closing inventory if can’t work out average

Average amount of days inventory is held for
Pros: buffer stock so can meet demand if there are shortages elsewhere
Cons: can become obsolete, have to pay to store / insure

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23
Q

Gross Profit Margin

A

Gross profit / Revenue X 100
= %

Shows the amount of revenue which has been converted into gross profit

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24
Q

Operating Profit Margin

A

Operating profit / Revenue X 100
= %

Shows the amount of revenue which has been converted into operating profit

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25
Return On Capital Employed
Operating profit / Capital employed X 100 = % Shows how well the long term funding is being used and how much profit is being generated from it
26
Capital Employed
Non Current Liabilities + Total Equity OR Total Assets - Current Liabilities
27
Asset Turnover
Revenue / Capital Employed = x times Shows how many times the long term funding has been turned into revenue
28
Working Capital Cycle
Inventory days + receivable days - payable days The days the business has to fund itself Ideally want this to be 0
29
Inventory Turnover
365 / Inventory Days The number of times the stock room empties & refills
30
Current Ratio
Current assets / Current liabilities = X:1 Shows how much asset we have to cover every £1 of debt (liabilities) A measure of liquidity, short term cash flow Ideal is 2:1 or above
31
Quick Ratio (Acid Test)
(Current assets - inventory) / Current liabilities = X:1 Shows how much asset we have to cover every £1 of debt (liabilities), less inventory as it is the least liquid asset A measure of liquidity, short term cash flow Ideal is 1:1 or above
32
Gearing
Non-current liabilities / (non current liabilities + equity) X 100 = % Shows the percentage of the company which is funded by debt not equity
33
Strategic Level of Organisation
Senior Management
34
Tactical Level of Organisation
The people who make senior management plans happen
35
Operational Level of Organisation
Day to day operations staff
36
Wide / Flat Structure
Less layers More responsibility at each layer Quicker decisions made
37
Thin / Tall Structure
Lots of layers Longer for decision to make Longer 'scaler' chain
38
Centralised Organisation
All power and decisions are at head office
39
Decentralised Organisation
The power is delegated to divisional heads Done from local branch
40
Scalar Chain
Steps between lowest and highest in organisation
41
Fraud
Intentional Deliberate Illegally gaining an advantage Causing a loss
42
Types of Fraud: Theft
Can be physical / non physical
43
Types of Fraud: Bribery / Corruption
Giving or receiving of a bribe to influence
44
Deception
Obtaining by deception Lying
45
False Accounting
AKA window dressing Making accounts look better than they actually are E.g. Increase revenue, exclude an expense Would happen when looking for investment, selling the company or at year end for bonuses
46
Misappropriation of Assets
Theft of assets
47
Misstatement of Assets
Assets not correctly stated / valued Most commonly inventory
48
Financial Impact of Fraud
The monetary amount
49
Non-Financial Impact of Fraud
Reputation Relationships Trust
50
Fraud Triangle
Opportunity - There is a problem with the controls in the business Motivation - Desperation, greed, revenge Rationalisation - Dishonest NEED ALL 3 POINTS FOR FRAUD TO OCCUR
51
Cyber Attack
Hacker wanting to gain access or damage a system / network
52
Ransomware
System taken over by an attacker and only released after payment of a 'ransom' Payment normally in crypto
53
Man In The Middle Attack
Logging into a false middle website which gives the hacker access to see everything you are doing
54
Malware
Virus which is a malicious software Can disrupt, damage or gain access to a system
55
Phishing
False emails asking for card details, etc.
56
Denial of Service Attack
Over powering a website in order to crash it
57
Data Protection Act 2018
Data needs to be kept secure - password protection, change regularly Can't keep data any longer than needed Keep data accurate, update when necessary
58
Data Analytics
Analyses large amounts of data to find trends / patterns Seeks out odd results
59
Predictive Data Analytic
Predicting what's going to happen next
60
Diagnostic Data Analytic
Diagnosing Why has it happened?
61
Prescriptive Data Analytic
How are we going to fix it
62
Descriptive Data Analytic
Description of what has happened
63
Parallel / Dual Changeover
2 systems running alongside each other
64
Direct Changeover
Switch old one off, switch new one on
65
Phased Changeover
Change over in stages, department by department
66
Pilot Before Changeover
Trial new system in a department to see how it goes before changing over
67
Change Agent
External service who deals with the changeover Useful for overcoming staff resistance to change
68
Non Financial Considerations On Change
Staff reluctant to change - creatures of habit, scared for job security, can't see need for change Can be slower at first More queries Staff frustration Customer frustration Staff concerned for job security
69
SWOT Analysis
Strengths - In our control, what its good at, INTERNAL Weaknesses - In our control, what we can improve on, INTERNAL Opportunities - Chances to improve (based on weaknesses), EXTERNAL, PESTLE Threats - Out of your control, Competitors, PESTLE, EXTERNAL
70
Monitor, Review & Report
Monitor - what are you aiming to keep an eye on? Review - how are you going to monitor? Report - report your findings, imagine presentation
71
2 Main Types Of Fraud
Misappropriation of Assets Misstatement of Financial Statements

AAT Level 4 (7 decks)

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