Assurance: Internal Control Systems – Revenue, sales, and purchase systems – Flashcards

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question
Name four risks associated with the revenue system.
answer
1) Goods sold to customers with poor credit ratings/customers don't pay 2) Orders mis-recorded 3) Orders go unfulfilled 4) Orders accepted at wrong price
question
What are the controls for the following risk of the revenue system: Goods sold to customers with poor credit ratings/customers don't pay
answer
- Credit checks - Changes to credit limits must be authorised by appropriate management - Regular review of customer's credit limits by senior staff
question
What are the tests of controls for the following risk of the revenue system: Goods sold to customers with poor credit ratings/customers don't pay
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- Review credit checks - Review customer balances compared to credit limits - Review changes to customer credit limits to ensure supported by authorisation form/email by management
question
What are the controls for the following risk of the revenue system: Orders are mis-recorded
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- Pre-printed, standard order forms - Confirm order with customer
question
What are the tests of controls for the following risk of the revenue system: Orders are mis-recorded
answer
- Inspect pre-printed order forms
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What are the controls for the following risk of the revenue system: Orders go unfulfilled
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- Match customers' orders to goods despatched notes and investigate unmatched orders - Customers' order forms pre-printed, sequentially numbered, and reviewed periodically for completeness - Customer queries investigated prompty by designated individual
question
What are the tests of controls for the following risk of the revenue system: Orders go unfulfilled
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- Review file of orders for unmatched order forms and investigate those over a certain age
question
What are the controls for the following risk of the revenue system: Orders accepted at wrong price
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- Standard price list - Discounts must be authorised appropriate level of management
question
What are the tests of controls for the following risk of the revenue system: Orders accepted at wrong price
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- Review standard price list - Customers receiving a discount -> trace back to email authorising discount
question
Name some risks and their controls associated with the sales cycle (concerning orders).
answer
Risk: Orders incorrect Control: Standard pre-numbered order forms. Email customer to confirm. Trained staff. Risk: Orders accepted at out of date price Control: Authorised price list. Approval of discounts. Risk: Lost orders Control: Sequence check on system Risk: Accept orders when none in stock Control: Check stock levels Risk: Order stock that you cannot fit in the store Control: Have special arrangements in place Risk: Orders accepted from bad credit risk Control: Credit check new customers
question
Name some risks and their controls associated with the sales cycle (concerning goods despatched).
answer
Risk: Goods despatched but not ordered Control: Only raise GDN if have order Risk: No record of despatch Control: Ensure all goods despatched have GDN Risk: Goods incorrect Control: Check orders before leaving warehouse Risk: Goods damaged Control: Quality control check Risk: Goods not despatched Control: Reliable transport company. Review all unmatched orders to GDN. Signed copy of GDN by customer.
question
Name some risks and their controls associated with the sales cycle (concerning invoices).
answer
Risk: Invoice for goods not despatched Control: Only raise invoices if they have valid GDN. Risk: Goods not invoiced Control: Review unmatched GDN to invoices. Risk: errors in invoicing Control: Independent review. Sequence check invoices. Risk: Invoice not recorded Control: Automatic posting
question
Name some risks and their controls associated with the sales cycle (concerning payment).
answer
Risk: Cash not recorded Control: Encourage payment by BACS Risk: Cash recorded incorrectly Control: 2 officials open post and list all amounts received on control sheet Risk: Cash stolen Control: Safe, bank ASAP Risk: No payment Control: Credit controller
question
Name some risks and their controls associated with the purchase cycle (concerning orders).
answer
Risk: Order unneeded goods Control: Approval of orders and of re-order quantities Risk: Do not order goods needed Contrl: Re-order levels based on regular stock checks Risk: Orders incorrect Control: Request confirmation of order Risk: Lost orders Control: Sequence check on system Risk: Order from poor/expensive supplier Control: Research supplier, approved supplier list
question
Name some risks and their controls associated with the purchase cycle (concerning goods received).
answer
Risk: Accept incorrect goods Control: Only accept goods if agree to valid order. Risk: Goods not delivered Control: Regular check of unmatched orders, chase up supplier Risk: Goods damaged Control: Quality check before accepting Risk: No record of delivery Control: Raise pre-numbered GRN from order, sequence check on system Risk: Goods stolen Control: Physical security controls
question
Name some risks and their controls associated with the purchase cycle (concerning invoice received).
answer
Risk: Invoiced for goods not received. Control: Approve invoice only if agree to GRN and order. Risk: Do not recognise liability for goods received not invoiced Control: Review GRN not matched to invoices Risk: Errors in invoicing Control: Recalculate based on order/GRN Risk: Unapproved invoices paid Control: Approval procedures/review Risk: Invoices not recorded Control: Automatic posting
question
Name some risks and their controls associated with the purchase cycle (concerning payment made).
answer
Risk: Do not pay Control: Supplier statement reconciliation, follow up unmatched invoices Risk: Pay too late/early Control: Flag payment dates on system Risk: Pay twice Control: Stamp invoices as paid Risk: Payment to wrong supplier or for wrong amount Control: Agree to supporting documents Risk: Fraud Control: Segregation of duties, double signatories Risk: Payment stolen Control: Pay by BACS
question
Name some risks and their controls associated with the wages cycle (concerning right people).
answer
Risk: Hiring poor staff Control: Recruitment procedures, checks Risk: Pay leavers or not pay starters Control: Complete starters and leavers forms, agree dates to contracts Risk: Pay dummy employee Control: Pre-numbered amendment forms, approval of amendments, amendments made by HR, spot checks, line managers to sign list of employees, passport/identity reviews
question
Name some risks and their controls associated with the wages cycle (concerning right hours).
answer
Risk: Hours under/overstated Control: Pre-numbered time sheets, approved by line manager; supervision over clocking in process Risk: incorrect split between standard and overtime Control: Review of input to standard hours, analytical review every month Risk: Pay for hours not required Control: Approval of overtime
question
Name some risks and their controls associated with the wages cycle (concerning right rate).
answer
Risk: Too high/low Control: Integrate system with HR records, range checks Risk: Fraud Control: Approved pre-numbered amendment forms, exception reports printed, operating logs of amendments, review/approval of rates
question
Name some risks and their controls associated with the wages cycle (concerning liability recognition).
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Risk: no liability/incorrect liability for net pay, PAYE, etc. Control: analytical review monthly, manual reasonable check
question
Name some risks and their controls associated with the wages cycle (concerning payment made).
answer
Risk: Pay wrong employees Risk: Pay into wrong bank accounts Control: Changes to bank details in writing and approved Risk: Pay dummy employees Control: Agree number of paypackets to number of employees Risk: Pay incorrect sums Control: Agree payslip to payroll Risk: Late payments Risk: No payments RIsk: Cash stolen
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