ACCA F8 (INT) Audit & Assurance - 2010 - Study text

Подождите немного. Документ загружается.

Answers

(iii) Evaluating the system

Use may be made of internal control evaluation questionnaires to

identify the key controls and weaknesses in the system.

(iv) Testing the controls

These tests will provide evidence that the system of internal control is

operating as laid down and that transactions are being properly

recorded and processed in the accounts.

(v) Reduced substantive testing

Assuming that the tests of controls backed up an initial assessment of

controls as strong, fewer tests of detail on the purchase transactions

themselves will be needed.

(d) Effect on audit work and action

(i) A weakness in the system of internal control

The reasons for the weakness should be determined to ascertain if it is

an isolated departure or is representative of other errors and therefore

indicates the possible existence of errors in the accounting records.

If further tests suggest that the control was not operating properly

throughout the period, no reliance can be placed on that control.

However, it is also necessary to consider the existence of compensating

controls.

If the weakness is serious and there are no compensating controls, it will

be necessary to move directly to substantive testing. The weakness

should also be reported to management.

(ii) Serious weaknesses in the system of internal control

If the weaknesses are so serious that the auditor cannot rely on the

system of internal control, he should increase the amount of substantive

testing on the purchases system. The weaknesses should be reported to

management and, if they may result in serious errors, it may be

necessary to qualify the audit report.

18 Control activities

(a)

Controltype Examplesfromthepurchasessystem

Authorisation Allordersareauthorisedbeforebeingplaced.This

mayinvolveatieredsystemwherebyordersunder,

say,$100needauthorisationbyadepartmenthead,

andordersover$100needauthorisationbyaboard

member.

Physical Accessisrestrictedbytheuseofhierarchical

passwordstomasterfilesofstandinginformation.

Informationprocessing

(arithmetic)

Invoicesreceivedfromsuppliersarechecked

 tothepriceonordersplaced,and

Paper F8: Audit and assurance (International)

426 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Controltype Examplesfromthepurchasessystem

 forarithmeticaccuracy.

Informationprocessing

(accounting)

Amonthlyreconciliationiscarriedoutbetweenthe

payablesledgercontrolaccountandthelistof

payablesledgerbalances.

Performance

review/management

Managementreviewmonthlypurchasesagainst

budgetandinvestigateanysignificantvariances.

Segregationofduties Differentpersonnelareresponsibleforordering,

receiptofgoodsandrecordingofinvoices.



(b) Why substantive procedures can never be completely eliminated

No system of internal controls can guarantee the elimination of errors for the

following reasons:

 Human error may result in incomplete or inaccurate processing which

may not be detected by control systems.

 It may not be cost effective to establish certain types of controls within an

organisation.

 Controls may be in place but they may be ignored or overridden by

employees or management.

 Collusion (two or more employees working together) may mean that

segregation of duties is ineffective.

19 Ascertaining and recording accounting systems

(a) Ascertainment

Inspection

The auditor can ascertain the working of an entity’s system through a review

of the records and documents which the entity itself maintains. This might be

through systems manuals, or flowcharts, possibly prepared by internal audit.

This first-hand knowledge will provide a good starting point but the auditor

will still need to confirm that the system operates in the manner specified.

This might be done via walk-through tests. The auditor might also increase

the reliability of what is, after all, internally generated (and therefore relatively

weak) evidence by assessing the competence and integrity of the internal

audit function or other preparers of the records.

Observation

Again, this will provide first-hand evidence of the way in which the system

operates. However, observation is a notoriously weak procedure as it only

provides assurance that the procedures are performed in a specified manner at

the time of the observation, and not that it operates in that manner at all times.

Enquiry

The auditor can further improve his understanding of the system through

discussion with management and key operational staff. However, he will need

to seek further direct evidence of the workings of the system as this internal

information may not be fully reliable.

Answers

(b) Recording

Narrative notes

These can provide a very detailed and complete record of the system, showing

the flow of documents, the departments involved, the personnel and any areas

of controls within the system.

However, notes can be very time-consuming to prepare and unless a clear,

precise approach is adopted it can be very difficult to see clearly the overall

picture and establish the system’s weaknesses.

Flowcharts

These give a pictorial representation of the system and highlight the flow of

documents, together with the operations and controls, in a way that is easily

and quickly understood. A disciplined approach is required but the method is

less complex and ambiguous than notes and provides a clearer picture.

Controls which could be relied upon are also immediately apparent.

The drawbacks to flowcharts are that they, too, are time-consuming to prepare

and wasteful if applied to simple systems (where narrative notes would

suffice). In addition, a comprehensive examination of the system is required so

as to ensure that the flowchart is not incomplete.

Questionnaires

Many auditors use questionnaires such as internal control questionnaires to

help them ascertain and record a system. Questionnaires provide a quick and

useful method of building up a picture of the system. They can also help to

minimise audit costs as they are standardised and fairly simple to use.

A further advantage is that they can help the auditor to identify internal

controls on which he may wish to rely. If the preliminary evaluation indicates

strong controls, the auditor can design and carry out tests of controls. If

weaknesses are noted the auditor can move directly to substantive testing and

can report the weaknesses to management.

20 Grander Products

Can wages be paid other than to bona fide employees?

 Are personnel records maintained independently of the accounts department?

 Is written authorisation required for employees added to or deleted from the

payroll?

 Are payrolls and payroll summaries approved and initialled by a responsible

official?

 Are payrolls checked periodically against the independent personnel records?

 Are surprise checks made on the wages payout by a senior employee?

 Are there procedures in place to ensure that wage packets can only be handed

out to the proper recipient?

 Is written authority required before an employee can claim wages on another’s

employee’s behalf?

 Are unclaimed wages re-banked promptly?

Paper F8: Audit and assurance (International)

428 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Can employees be paid for work not done or at an incorrect rate of pay?

 Is written authorisation required for all changes in rates of pay?

 Does the personnel department notify the payroll department of all such changes?

 Are piecework records supervised by a responsible official?

 Are piecework records approved by a responsible official before being processed?

 Are piecework records checked before processing for:

− evidence of appropriate approval

− casts and calculations?

 Are proper controls exercised over adjustment for lateness, sickness and other

absences?

 Is there adequate segregation of duties between the person responsible for the

preparation of the payroll and the payment of the wages?

 Are payrolls checked:

− with piecework records

− for correct rates of pay

− for casts and calculations?

 Are wages regularly compared with budgets and significant variances

investigated?

Can errors occur in payroll deductions?

 Is there proper authorisation for all payroll deductions other than statutory

deductions?

 Does the system provide adequate safeguards for dealing with statutory

deductions such as taxation deducted at source?

 Are returns to the tax authorities agreed to the payroll?

 Is adequate control exercised over the processing of payrolls into the accounting

records?

21 Pivo

(a) Procedures for setting up

(i) Customer files

 The computer system should be checked, and the method of storing

customer files on the system ascertained. This will enable the key

field for the customer file to be determined.

 A manual list of customers should be produced, showing for each

customer, the address, credit limit and key field. The key field could

be the customer name, or a reference number, or a combination of

both of these.

 The list of customers should be approved as being correct, possibly

by Mr Pivo before it is input to the computer.

Answers

 Hash totals (e.g. the total of all credit limits and key fields (if

numeric)) may be calculated to check the completeness and accuracy

of input.

 Customer details should be input to the computer. The data on the

computer should be saved regularly during this process, and a

printout obtained.

 The printout should be agreed back to the manual listing of

customers, preferably by a person who is not responsible for the

input of data. Any errors found should be marked and amendments

made to the computer files.

 When all the customer details have been entered, the computer can

generate the hash totals of credit limits and account references. These

should be agreed back to the manual totals. If there are differences

then the reason for the difference should be ascertained by checking

the computer files to the manual listing in detail.

 Full back up copies of the complete customer file should be taken,

and one copy always kept in a secure location, away from the

computer.

(ii) Price list

The input of price list details is very similar to that of customer details.

 A manual list of products and prices is prepared.

 A key field is determined and hash totals calculated.

 A list of products is approved by Mr Pivo.

 Products are input to the computer with frequent back-ups and

printouts produced of the items input.

 Printouts agreed to the manual list, and hash totals agreed to

manually calculated hash totals.

 Independent person agrees accuracy of transfer of product details.

(iii) Sales ledger balances

The date of the transfer of balances must be decided in advance.

 On this date a manual list of the sales ledger balances should be

taken, and reconciled to the sales ledger control account.

 Any differences in the above reconciliation should be investigated

and the final listing produced.

 If only the balances are to be input to the computer system, then the

list can be input, and the total generated by the computer of all

balances agreed to the manual list. Any differences should be

investigated and the totals finally agreed.

 Pivo may wish to input details of the invoices making up the

individual sales ledger balances. In this case each balance will have a

sublisting of invoices. Input will be the total as above, and then the

supporting invoices for each ledger account. A print out of all

balances and totals should be agreed to the manual listing and any

errors corrected.

Paper F8: Audit and assurance (International)

430 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

 During the input of balances, frequent back-ups should be taken to

ensure that data is not lost.

 After the input, security copies of the data should be taken. At least

one copy should always be kept in a secure location away from the

computer.

 Manual update of the sales ledger may continue until the computer

system is shown to be reliable. Processing will then only continue on

the computer system.

(b) Controls over

(i) Input of transaction data

Transaction data being input will include:

 despatch notes

 credit notes

 cash received

 discount allowed.

It is likely that the input system is batch based, because of the good

controls that can be built around this on a small microcomputer.

 A batch book will be used to record the batches of documents being

input to the system.

 A batch will be created by getting a number of like documents, and

generating batch and hash totals for them. Totals of cash received

can be a batch total for money coming into the company, although

batches of despatch notes will only give the hash totals of despatch

note number and goods reference etc (the computer calculates the

sales value).

 The batch will be given a unique reference number from the batch

book, where a record of the batch will also be maintained.

 This reference number will assist in stopping unauthorised input if

unauthorised input occurs, the batch book’s next batch number will

not agree to the computer. Basic passwords should also be used to

protect the system.

 The transaction documents should be input to the computer. After

input, the batch and hash totals should be agreed to those manually

calculated prior to input. Any differences should be investigated and

reconciled.

 The person inputting the batch should sign the batch book as

evidence that input was complete and accurate.

 After input has been reconciled, back-up copies of the master and

transaction files should be taken.

(ii) Amendments to standing data (customer files)

 Only authorised personnel (perhaps Mr Pivo only) should be

allowed to change the standing data.

Answers

 Special passwords should be used to protect the standing data files,

and only authorised users given these passwords. The passwords

themselves could be changed regularly.

 New customers should pass an initial credit vetting and be

authorised as a customer by a responsible official, who will also

determine their credit limit. Any other changes, such as increased

credit limits, should be authorised in the same way.

 Customer details should be entered into the computer master file,

and a printout immediately obtained of the amendment made.

 The new record should be checked for accuracy and initialled by an

authorised official as being correct. A record of the amendment

should be entered in the control book, which should log all changes

to the master file.

 A printout of the entire master file details should be obtained

periodically and be reviewed by Mr Pivo for any unauthorised

changes that may have taken place.

 Old accounts that are no longer used should be deleted from the

ledger.

(iii) Amendments to the prices of products

Controls here will be similar to (ii) above.

 Passwords should be used to prevent unauthorised access to the

prices master file.

 Changes should only be made by a responsible official.

 A printout of all changes made should be obtained and agreed by

this official as being correct.

 A log book should be kept showing all changes made.

 The complete list of inventory prices should be printed out and

checked by Mr Pivo regularly to ensure that they are correct.

 Products which are no longer held should be deleted from the

computer.

The following assumes that a sales ledger control account is kept:

 The list of sales ledger balances should be obtained and agreed to the

control account (the control account should be maintained by a person

who is not responsible for the computerised sales ledger).

 The total of cash and discounts on the control account should be agreed to

the cash book.

 Copies should be kept of all invoices produced by the computer. These

copies should be reviewed by a responsible official to ensure that the

invoices are reasonable, and that the numeric sequence is complete. Any

abnormally large or small invoices should be investigated as should any

breaks in the numeric sequence.

Paper F8: Audit and assurance (International)

432 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

 Low volume transactions, such as bad debt write-offs and credit notes,

should be authorised by Mr Pivo. Similarly, any abnormally large

discounts should be investigated.

 The aged receivables listing produced at each month end should be

reviewed by Mr Pivo. Any old balances should be investigated, not only to

ascertain when payment can be expected and to stop sales turning to bad

debts, but also to identify possible incorrect postings in the ledger.

22 Sales cycle controls

(a)Controlobjective

Explanationof

importance

(b)Internalcontrols

Processingoforders 

Toensurethatordersare

onlyacceptedfrom

creditworthycustomers.

Toreducetheriskthat

baddebtsoccur.

 Establishcreditlimits

forallcustomers

 Creditlimitsshouldbe

authorisedbythesales

director.

 Priortoacceptanceof

anorder,comparethe

balanceonthe

customer’ssales

ledgeraccounttotheir

creditlimit

Toensurethatordersare

onlyacceptedatan

appropriateprice.

Toavoidsubsequent

disputesover

price/discountandto

avoidacceptingorderson

whichalosswouldbe

made.

 Checkorderpriceto

currentpricelistprior

toacceptanceofthe

order.

 Checkdiscountsto

approveddiscount

list.

 Anyvariationsshould

beauthorisedbythe

salesdirector.

Toensurethatordersare

onlyacceptedifgoodsof

appropriatequalityarein

inventory.

Toreducetheriskof

goodsbeingreturneddue

totheirpoorqualityand

thelossofcustomer

goodwillduetothe

acceptanceofanorder

which

couldnotbe

properlyfulfilled.

 Checkavailabilityof

goods(tostoresor

inventoryrecords).

Answers

(a)Controlobjective

Explanationof

importance

(b)Internalcontrols

Despatchofgoods 

Toensurethatgoodsare

despatchedpromptly.

Toreducetheriskofa

lossofcustomergoodwill

duetothelatedespatch

ofanorder.Itwillalso

(forperishablegoods)

minimisethe

deteriorationofinventory

andavoidnetrealisable

valueproblems.

 Preparepre‐numbered

salesordersfrom

approvedcustomer

orders.

 Regularlyreview

outstandingsales

ordersanddespatch

goodsassoonas

available.

Toensurethatgoodsare

onlydespatchedafter

authorisation.

Toreducetheriskofbad

debtsandavoiddespatch

notesbeingraisedfor

goodsnotcurrentlyin

inventory.

 Preparepre‐numbered

despatchnotesfor

approvedsalesorders.

 Onlydespatchgoods

forwhichapre‐

numbereddespatch

notehasbeen

prepared.

Toensurethatcustomers

acknowledgethereceiptof

goods.

Toavoidsubsequent

disputesoverdelivery.

Withoutproofofdelivery

thiscouldleadto

financialloss.

 Despatchnotesshould

betwopart.The

customershouldsign

asproofofdelivery.

Onecopyshouldbe

retainedandreturned.

Returnofgoods 

Toensurethatreturned

goodsareonlyaccepted

forgenuinereasons.

Toavoidcustomersbeing

givenrefundsforinvalid

reasons.

 Reviewreasonfor

returnofgoodsand

assessvalidity.

 Creditnotesshouldbe

authorisedbya

responsibleofficial.

 Apre‐numbered

goodsreturnednote

shouldberaised

recordingquantity

andreasonforreturn.

Paper F8: Audit and assurance (International)

(a)Controlobjective

Explanationof

importance

(b)Internalcontrols

Toensurethatonly

saleablegoodsare

returnedtoinventory.

Iffaultygoodsarenot

separatelyidentified,the

faultygoodscouldbe

despatchedtoanother

customerorinventory

valuecouldbe

overstated.

 Physicallyinspect

returnedgoods,noting

anydamageonthe

goodsreturnednote.

 Storefaultygoods

separately,clearly

identifiedassuch.

23 Countrywide Sales

(a) Internal controls over fleet capital and revenue expenditure

 The approval of a fleet capital and revenue expenditure budget by the

board of directors.

 Regular monitoring of actual costs against budget.

 Authorisation procedures for purchase/leasing covering:

− personnel allowed to authorise acquisitions/leases

− ordering procedures through requisition and authorised order forms

− registration and insurance of vehicles.

 Quality control procedures on delivery of vehicles.

 Procedures for authorisation and signature of cheques, standing orders

and invoices.

 Authorisation of all revenue expenditure, including repairs (with a policy

in respect of when to repair or replace), servicing and fuel.

 Procedures to ensure that all possible insurance claims are made and

recovered.

 Choice made between cash purchase and leasing in accordance with

company policy.

 All leasing contracts scrutinised by the company’s legal department prior

to signature.

 A fleet register maintained, showing for each vehicle: date of purchase,

estimated useful life and depreciation rate.

 Physical maintenance of the fleet, with a policy in respect of the frequency

of servicing.

 Authorisation procedures for disposals.

(b) Tests of control

Capital expenditure

 Check that new vehicles ordered were within expenditure limits,

authorised, and orders were made on official order forms.

 Check that cash payments/leasing deposits/payments were authorised.

ACCA F8 (INT) Audit &amp; Assurance - 2010 - Study text - Emile Woolf Publishing

Подождите немного. Документ загружается.

ACCA F8 (INT) Audit & Assurance - 2010 - Study text - Emile Woolf Publishing