Who implements internal controls?
management and TCWG to prevent and detect fraud and error
When will an auditor only ever carry out tests of controls?
If their initial risk assessment suggests that the entity’s internal controls operate effectively
The auditor must test that the control
- is properly designed
- exists
- has operated throughout the period
If failures of internal controls occur or deviations, should it be recorded and investigated regardless of the monetary amount involved? and why?
Yes because auditors must assess whether deviations are isolated departures of indicate the existence of errors in accounting records
If the results of the tests of control are unsatisfactory, then the auditor’s prelim assessment of control risk is not supported and the auditor must perform extensive substantive procedures
True
What do tests of controls include?
enquiry
observation
reperformance of the control
inspection of documents to support that the control operated effectively
examination of evidence of management reviews eg. board minutes
Testing of the control activities performed by a computer
What are the processes in the sales system cycle?
Order placed by a customer - order form
order is sent to warehouse for picking and despatch - goods despatched note
revenue is recorded when customer receives the goods or as otherwise stated, so invoice is prepared
payment is made against invoice - remittance advice
Deficiencies in internal control system
the control system is not designed properly or is missing.
Tests of control
the control system is there, but i need to check if it is working
Examples of risks in the order stage
- An order is accepted from and goods are dispatched to a customer who is not creditworthy
- An order is not fulfilled
- Wrong items or wrong quantities or damaged goods are dispatched
Examples of risks in the payment stage
Funds are misappropriated or stolen
Funds are not allocated to their correct invoices which may lead to issues in reconciliation
payments is not received resulting in bad debt
Examples of risks when despatching goods
Goods are not despatched based on what the customer ordered
Faulty or damaged goods are despatched
Goods are stolen
Examples of risks when goods are invoiced and recorded
goods despatched are not invoiced correctly
posted to the wrong customer account
Who implements internal controls ?
Management and those charged with governance to prevent and detect fraud and error
