M10EFA: Auditing and Assurance Test of controls and the systems e.g. the sales, the purchases, inventory, cash, the payroll systems etc.
IC is a PROCESS designed and effected by people to provide reasonable assuranc
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M10EFA: Auditing and Assurance Test of controls and the systems e.g. the sales, the purchases, inventory, cash, the payroll systems etc.
IC is a PROCESS designed and effected by people to provide reasonable assurance aimed at achievement of organizational objectives related to Auditors assessing/testing Internal Control Systems:
Are controls implemented?
Are controls effective?
Testing can include:
Observation of control activities in operation (e.g. Inventory count; how, how consistently, by whom)
Inspection of documents recording the performance of the control (e.g. Checking for an authorising signature)
Inquiries about Internal controls
Tests of Controls I The tests of control in the sales system revolve around the three component parts of the system:
Sales System: Control objectives Sales System: Controls What auditors do
Ordering and granting of credit
Dispatches and invoices
Recording of and accounting for sales & cash receipt
Recording of and accounting for sales & cash receipt
The Inventory System Control objectives - why do we need the controls?
Recording
Authorisation and recording of movements
Inventory System: Control objectives (Cont’d) Recording
Segregation of duties (custody and recording)
Reception, checking and recording of goods inwards
Protection of inventory
Precautions against theft, misuse and deterioration
Security over inventory held by third party and third party inventory held by entity
Tests of controls (what auditors do)
Inventory movements
Lecture question/tutorial Controls over cash receipts and payments to prevent theft and fraud
The Cash System - Controls The Cash System – Test of Controls
The Cash System – Test of Controls (Cont’d) The Payroll System- Control objectives
Items to test
correct amounts paid to Inland Revenue and other external organisations.
appropriate amounts recovered from external organisations.
total payroll authorised.
adequate security over cash transmissions.
payroll totals correctly posted to accounts.
segregation of duties
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