Chapter 7 System & Controls Chapter 7. System and controls - - PowerPoint PPT Presentation
Chapter 7 System & Controls Chapter 7. System and controls Introduction 1. How do ICS operates 2. Ascertaining the systems 3. Documenting client systems 4. Testing the system 5. The revenue cycle 6. The purchase cycle 7. The
Chapter 7.
System and controls
1.
Introduction
2.
How do ICS operates
3.
Ascertaining the systems
4.
Documenting client systems
5.
Testing the system
6.
The revenue cycle
7.
The purchase cycle
8.
The payroll system
9.
The inventory system
The process designed, implemented and maintained by management to provide reasonable assurance about the achievement of an entity’s objectives with regard to
CE - RP - IS - CA – MC
Reporting (IS)
CONTROL ENVIRONMENT
financial reporting. RISK ASSESSMENT PROCESS
INFORMATION SYSTEM
CONTROL ACTIVITIES
MONITORING OF CONTROLS
Auditors shall
for the financial reporting &
which will provide him the basis for designing & performing audit procedures. Auditors are only concerned with assessing the policies & procedures which are relevant to financial reporting.
Having documented the systems the auditor needs to assess whether controls are actually implemented and are effective. Test of Controls are performed to ensure that the prescribed controls are implemented and operating effectively throughout the audit period.
Test of Controls (ToCs) Test of Controls are designed to evaluate the operating effectiveness of controls in preventing or detecting and correcting material misstatements. Substantive Procedures (SPs) Substantive Procedures are designed to detect material misstatement at the assertion level.
Control Objectives (COs). The purpose of internal control. Control Activities (CAs). Policy and Procedures included in internal control. Test of Control (ToCs). Whether or not control objectives achieved, and controls are operating effectively.
Take Order Document Order
Make Order
Raise Dispatch Notes Dispatch Goods Raise Invoice
Account for Invoice
Dispatch invoice
Chase Payment
Receive Payment Record Payment
Raise Requisition Call quotations Raise Order Receive Goods Produce Goods Raise GRN Receive Invoice
Match Invoice with GRN
Record Invoice Send Payment
Record Payment
Goods Received Receipt Recorded GRNs Inventory Movement Controlled & Recorded GDNs Dispatch Recorded Goods Dispatched
Attendance Recorded & Entered Gross Pay, Deduction & Net Pay Calculated Other Adjustment Made Final Payroll Prepared & Pay slips Produced & Approved Payments to Employees Payment to Tax Authorities Recording of Payroll
Request for Payment Approval of Payment Supporting checked Payment Made Recorded in Cash Book
Acknowledgement
Receipts
and in full.
customer.
& at an appropriate value.
Typical T
Test of Control for Sales Observe and evaluate whether proper segregation of duties is operating. Test a sample of sales invoices for authorized sales order form & dispatch docs. Examine application of controls for approval. Review & test entity’s procedures for numerical sequences of invoices. Review entity’s procedures for sending out monthly statements and dealing with customer queries. Review entity’s procedures for granting credit to customers. Examine a sample of sales orders for evidence of proper credit approval by the appropriate senior staff member. Review all new customer files to ensure satisfactory credit reference have been
Compare prices & terms on a sample of sales invoices to the authorized price list.
Occurrence & Existence
Typical T
Test of Control for sales
Review & test entity’s procedures for accounting for numerical sequences of invoices. Trace a sample of dispatch documents to the sales invoices and ledger. Review a sample of reconciliations performed. Inspect the open-order file for unfilled orders. Vouch recorded sales to supporting documents. Compare dates on sales invoices with dates of correspondence dispatch documentation. Compare dates on sales invoices with dates recorded in the sales ledger. Review sales ledger for proper classification. Examine a sample of sales invoices for proper classification. Test application controls for proper codes.
Completeness Cut Off Accuracy Classification
necessary goods are procured
accurately and at an appropriate value.
Typical T
Test of Control for Purchases
authorized.
match it to the order.
done.
check.
Occurrence & Existence
Typical T
documents.
invoices.
Completeness
Right & Obligation Accuracy Classification & Valuation Cut Off
customer demand.
levels are not excessive, preventing
Typical T
Test of Control for Inventory
then reviewed by an independent person.
relevant staff.
Occurrence & Existence
Typical T
independent person.
inventory.
Completeness
Right & Obligation
Accuracy Classification & Valuation Cut Off Presentation & Disclosure
authorities.
Typical T
documentation is in place.
consider whether adequate.
changed in the year.
appropriate level managers.
numbers from the payroll master file.
Occurrence & Existence
Typical T
Completeness Accuracy Classification & Valuation Cut Off Presentation & Disclosure
expenses.
Auditor’s main responsibility is to report on financial statements however, auditors are encouraged to report deficiencies, if any, in internal controls relevant to financial reporting.
Deficiencies shall be reported in a DES-R manner:
Deficiency Effect Suggestion Response
Deficiency = Deficiency found by auditor in internal controls. Effect = Potential effect of the deficiency. Suggestion = Auditor Suggestion to overcome the deficiency. Response = Management actual or proposed response for correction.