SU5 Application controls

Question 1

Define application controls

Answer 1

Controls over input, processing & output of financial information to ensure that info is valid, accurate and complete.

Question 2

Objectives of application controls

Answer 2

• Validity (occurence and authorisation)
• Accuracy
• Completeness

Question 3

What are the 4 main categories of application controls?

Answer 3

1. Batch controls
2. Input controls
3. Output controls
4. Masterfile amendments

Question 4

How does the batch control system work? (manual and computer side)

Answer 4

Manual side:
1. Source document grouped into batches
2. Control totals are manually computed
- financial totals
- hash totals
- record counts
3. Batch control sheet prepared and attached (should contain):
- unique number
- control totals
- transaction type
- signature spaces
4. Batch register used to record physical movement
- clock cards or sales orders.

Computer side:
1. Details of batch are keyed into the computer
2. computer perform validation checks
3. computer calculates own control totals
4. Agree= Accept
Disagree= rejected for correction

Question 5

Input controls - Screen aids (5)

Answer 5

1. Minimum keying in of information
   - auto retrieve details
   - drop-down lists
2. Screen format
   - look like hardcopy
3. Screen dialogue/ screen prompts
   - confirmation messages
4. Mandatory fields
5. Shading of fields
   - not changeable

Question 6

Input controls - Edit checks (not screen aids)

Answer 6

1. Existence/Validity checks
   - Validation tests (An employee number or customer number exists)
   - Matching tests (Input information matched against data already in the database)
   - Data approval/authorisations tests (Id number will indicate whether alcohol sales can be made – older than 18)
2. Reasonableness & limit checks
   - Limit checks (Customer’s credit limit cannot be exceeded, normal hours per week not exceed 40)
   - Reasonableness checks (Normal, historical order qty is 100, qty entered is 1000, not reasonable)
3. Dependency checks (Credit limit linked to credit rating)
4. Format checks
   - Alpha-numeric checks (Everything that is entered is numbers, or letters)
   - Size checks (ID number not more than 13 digits, cell number not more than 10 digits)
   - Mandatory field/missing data checks (Detect blanks where none should exist)
   - Valid character & sign check (Positive numbers only in order quantity field)
   - Check digits (Extra character added to account or part number, by the application)
   - Sequence checks (Detect gaps or duplications)

Link controls with objectives.

Question 7

Processing controls

Answer 7

Program edit checks – Check performed by computer
i. Sequence test
- Identify gaps in a sequence
ii. Arithmetic accuracy test
- Reverse multiplication (e.g. 3*6 =18 AND 18/6 = 3)
iii. Reasonableness (Range test)
-Test amount for reasonability
– compare to other data
iv. Limit test
- Identifies amounts that falls outside limit
v. Accuracy test
- Casts and cross cast
vi. Matching
- Match data with data on MF

Program reconciliation checks
i. Control totals
- Record counts/hash totals from input is compared to record and hash totals after processing
ii. Run-to-run totals
- Final balance = Opening balance + total of transactions processed
iii. Valid operation code
- Processor confirms the instruction being executed is one of a valid set of instructions (e.g. bankrecon)
iv. Echo Test
- System sends a signal to an input or output device – the device returns a signal indicating itis a valid device. (bounce back)

Question 8

Output controls

Answer 8

1. Preventative controls
   - Clear report identification (name/time/pages of report)
   - Distribution matrix (who is to received output when)
   - Distribution list (if printed out, to sign receipt)
   - Sealed envelope for confidential data
   - Output not required should be shredded
2. Detective user controls:
   - Review of output for completeness
   e.g numerical sequence
   - Reconciliation of input to output
   e.g. cost centre overtime work with factory records
   - Review of output for reasonableness
   e.g. FM review period to period wage recon
   - Review and follow up of any exception reports produced during processing

Question 9

Masterfile amendments are applicable for any?

Answer 9

For any changes to debtor/ creditors/ inventory standing data for example adding/ deleting debtors or creditors or inventory items

Question 10

Masterfile amendment controls:

Answer 10

1. Record MA on source doc
   - record on MAF
   - MAF sequence, preprinted and source document design
2. Authorize MA
   - signed by 2 senior members
   - referenced to supporting documentation
3. Enter only authorized MA
   - write access must be restricted
   - update of data link to a specific person that captures information
   - MA logged automatically by computer
   - Screen aids
   i. screen format (MAF)
   ii. screen prompts
   -Edit checks
   - Sequence check MAF
4. Review MA
   -access of logs restricted to senior by sound logical access controls to review
   - sequence of logs checked
   - sequence of MAF checked