Topic 9 Systems Flashcards

Question

what are the objectives of a cash system

Answer 1

✓ Cash is safeguarded ✓ Minimal cash held on site for legitimate expenditure ✓ Payments for authorised business expenditure only ✓ Cash and cheque books are safeguarded ✓ Receipts are banked on a timely basis ✓ Cash movements are recorded on a timely basis

Answer 2

* Request for payment * Payment authorisation * Payments made/ receipts * Payments and receipts are recorded

Answer 3

* Inventory levels meet the needs of production (raw materials and components) and customer demand (finished goods) * Inventory levels are not excessive, preventing obsolesence and unnecessary storage costs * inventory is safeguarded from theft, loss or damage * Inventory movements are recorded on a timely basis * All inventory is recorded * Inventory is valued at lower of cost and NRV

Answer 4

1) Goods Received (Supplier) or Good Dispatched/Returned goods 2) goods are stored in a warehouse + Recorded / dispatch recorded 3) Movements posted to nominal ledger and inventory cards

Answer 5

Procedures used to obtain evidence regarding the design and implementation of controls include:  examine previous audit work Enquiries of relevant personnel. Observing the procedures / application of controls. Tracing a transaction through the system to understand what happens (a walkthrough test). . Inspecting documents, such as internal procedure manuals. It should also be noted that enquiry alone is not sufficient to understand the nature and extent of controls. Auditors can also use existing knowledge of the client and the operation of the systems. However, the auditor cannot simply rely on their knowledge from the prior year audit as changes may have occurred. Systems knowledge must be updated and the systems tested once more.

Answer 6

A test of control involves the auditor obtaining evidence that the client has implemented the controls they say they have, and that they have worked effectively, during the period. Typical methods of controls testing include: Walk through (confirmation of the auditors understanding of a system and how it works- THIS IS NOT A TOC) below are all test of controls: Observation of control activities, e.g. observing the inventory count to ensure it is conducted effectively and in accordance with the count instructions. . Inspection of documents recording performance of the control, e.g. inspecting an order for evidence of authorisation. . Computer-assisted audit techniques (such as test data to ensure the programmed controls are working effectively. See the 'Evidence' chapter).

Answer 7

The Auditors will communicate deficiencies in the internal controls to those charged with governance and management. This will be communicated via a management letter or report to management sent at the end of the audit process. This is a two part : 1) Covering letter - covers the deficiencies identified during audit work - for sole use of the company - no disclosure to third parties without agreement - no responsibility assumed to any other parties 2) Appendix - Deficiencies - Consequences - Recommendations Space for managements response In the exam, you have to follow this: 1) Identify the deficiency 2) The consequence of that deficiency 3) Recommendation

Answer 8

The auditor must document the client’s control systems before evaluating whether the system is adequate and working effectively. * Narrative notes (written desctiption of system) * Flow charts * Organisation chart * Questionnaires - > Internal control questionnaire (ICQ) - > Internal control evaluation questionnaire)

Answer 9

The main advantage of narrative notes is that they are simple to record, after discussion with the company these discussions are easily written up as notes. Additionally, as the notes are simple to record, this can facilitate understanding by all members of the team, especially more junior members who might find alternative methods too complex.

Answer 10

Narrative notes may prove to be too cumbersome, especially if the system is complex. This method can make it more difficult to identify missing internal controls as the notes record the detail but do not identify control exceptions clearly.

Answer 11

A pictorial of how the system works Can be prepared quickly. Tend to be easily followed and understood. Eliminates the need for detailed narrative notes.

Answer 12

It’s difficult to show a graphic illustration for unusual transactions, and narrative notes tend to be better, due to the uniqueness. Major amendments are difficult without a complete redraw.

Answer 13

ICQ- Internal control questionnaires | ICE- Internal control evaluation questionnaires

Answer 14

Internal control Evaluation questionnaires which lists the objectives, and asks the client how they meet that objective. These are not structure to be a yes/no but it's still a q about how they meet their objectives of that control e.g. how does the co check that there are no duplicate payments through the bank accounts

Answer 15

Internal control questionnaires are used to assess whether controls exist which meet specific objectives or prevent or detect errors and omissions. Asking a series of questions that require yes/no answers does a company reconcile its bank ac balance to the bank statement each month?

Answer 16

Questionnaires are quick to prepare, which means they are a cost effective method for recording the system. They ensure that all controls present within the system are considered and recorded; hence missing controls or deficiencies are clearly highlighted. Questionnaires are simple to complete and therefore any members of the team can complete them and they are easy to use and understand.

Answer 17

It can be easy for the company to overstate the level of the controls present as they are asked a series of questions relating to potential controls. Without careful tailoring of the questionnaire to make it company specific, there is a risk that controls may be misunderstood and unusual controls missed.

Answer 18

1) Covering letter - covers the deficiencies identified during audit work - for sole use of the company - no disclosure to third parties without agreement - no responsibility assumed to any other parties

Answer 19

2) Appendix * often in tabular format - Deficiencies - Consequences - Recommendations space for managements response

Answer 20

``` ▪ Check for counterfeit ▪ Sign it in ▪ Deposit in a secure place ✓ Safe ✓ Strongroom ✓ Locked cashbook ``` ▪ Security locks ▪ Swipe cards ▪ Night safe ▪ Regular banking but not in a pattern

Answer 21

▪ Agreed back to sales invoice documents ▪ Bank regular ▪ Review and authorised

Answer 22

▪ Authorised payments ▪ Agree back to relevant documentation

Answer 23

``` ▪ Review from management for reasonableness ▪ Segregation of duties ▪ Bank reconciliations ▪ Customer statement reconciliation ▪ Supplier statement reconciliation ```

Answer 24

A note internally to an authorised manager asking if an order can be raised ▪ All requisitions authorised ▪ Central purchasing department ▪ Review inventory levels first ▪ Sequentially numbers requisition pad

Answer 25

▪ Requisition note attached and agreed to order ▪ Request order confirmation in writing ▪ Preferred supplier list ▪ Agree quoted price against supplier list ▪ Copy of the order sent to warehouse and send the order to supplier

Answer 26

in the warehouse ▪ One secure area ▪ Update inventory records GRN is an internal document produced by the warehouse which we keep ▪ Review quantity, quality and agree GRN back to the order ▪ Copy of the GRN is signed and sent to accounts department

Answer 27

Invoice received ▪ Match invoice to requisition order, GRN ▪ If no GRN ask for proof of delivery

Answer 28

▪ Batch controls on input ▪ Recalculate invoice, sign authorise- agreed the prices on order and requisition ▪ Reconcile to monthly statements

Answer 29

▪ Stamp invoice to say paid ▪ Separate file for paid / unpaid ▪ Authorise payments after looking at supporting documents ▪ Authorise invoices for payments

Answer 30

``` ▪ Agree payment back to invoice ▪ Allocate to specific invoice ▪ Bank reconciliations ▪ Supplier statement reconciliation ```

Answer 31

``` ▪ Confirm orders in writing ▪ Carry out credit checks ▪ Establish limits ▪ Pre-number orders ▪ Exception reports ▪ Check inventory levels before acceptance ▪ Discount authorised ▪ Standard price list ▪ Approval of order if it exceeds a certain amount ```

Answer 32

1) Goods dispatched department | 2) a copy is also sent to Accounts department

Answer 33

▪ Copy of pre-number numbered order sent to dept. ▪ Weekly order check ▪ Order signed by inventory picker ▪ GDN raised and matched to order signed

Answer 34

▪ Customer signs GDN to agree goods delivered (proof of delivery) ▪ Sequentially numbered GDN, ▪ review for missing GDN --->▪ Copy of signed GDN sent to accounts department

Answer 35

▪ Invoice matched to order and GDN ▪ Unmatched GDN to be reviewed (unfulfilled orders) ▪ Invoices signed as agreed to PO, GDN, price list ▪ Recalculation (sales tax/ prices/ quantities) --->▪ Invoice sent to customer

Answer 36

▪ Review receivables for credit balances ▪ Agree back to invoices ▪ Reconciliation ▪ Send out customer statements

Answer 37

``` RECEIVED ▪ Agreed back to invoice ▪ Double count ▪ Review aged listing ▪ Debt chasing ``` ``` RECORDED ▪ Monthly statements sent out ▪ Bank reconciliation ▪ Regular banking ▪ Segregation of duties ```

Answer 38

a credit note is raised instead of invoice ▪ Authorised ▪ Tied to invoice ▪ Ensure valid ▪ Check for sequence

Answer 39

CLOCKCARD BY AN AUTHORISED PERSONNELL ▪ Supervise clock in and clock out ▪ Head count ▪ Registers ▪ Authorisation of timesheet --> Send to accounts department "Payroll Clerk"

Answer 40

* Standing data input (HR Department) | * Processing the wage (Payroll clerk)

Answer 41

▪ Monthly print of changes reviewed and authorised by management ▪ Data about employees printed and reviewed on a regular basis ▪ Password, restricted access to thedata ▪ Complete a joiners / leavers form (risk of continuing to pay)

Answer 42

▪ Recalculate wages ▪ Recalculate tax deductions to pay HMRC ▪ Exception reports ( E.g. if large overtime payment / contract) ▪ Review and authorisation from management for unusually high amounts and duplicates

Answer 43

.▪ Wage clerk signs print out that double entry has been done ▪ Check the amounts agree ▪ Sign amendment sheets when updated on accounting system ▪ Management review for reasonableness

Answer 44

▪ 2 people present ▪ Employees signs receipt of cash ▪ Agree back to wage accounts ▪ Wage control account

Answer 45

▪ Authorised signatory ▪ Agree back to wage accounts ▪ Wage control account

Answer 46

▪ Set location for inventory ▪ Signed for by manager ▪ Agree quantity and quality to order

Answer 47

Organised Security / Reg Standing data input

Answer 48

Rotation ▪ Bins ▪ Shelves

Answer 49

``` ▪ Sprinklers ▪ Fire alarms ▪ CCTV ▪ Restricted access ▪ Temp regulations ```

Answer 50

counting the physical stock and checking against the automatic stock sheets external auditor will also annually audit/attend the stock count

Answer 51

▪ Staff count in pairs ▪ Inventory sheets prenumbered ▪ Signed ▪ Close down warehouse for count ▪ Mark inventory when counted ▪ Write in pen ▪ Random second counts ▪ Staff don’t count area they are responsible for

Answer 52

A control objective should describe a risk to be mitigated by an internal control example: To ensure capital items purchased are for valid business use To ensure capital items purchased represent value for money DO NOT JUST Describe the internal control but not the risK like * To ensure capital items purchased are authorised * to ensure all capital items purchased are given a unique serial number