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ACTG 4P61 - External Auditing I

Terms in this set (148)

Need to ensure controls are reliable insofar as making sure recorded sales are for goods and services that were actually shipped to non-fictitious customers
(Ie. Need to make sure that fictitious sales are not recorded)

Possible attribute: Segregation of duties /// Test of control itself: Check narratives, observe the preparation of the corresponding documents, observe the performance of tasks, check for job positions and authority limits of signing parties, inquire with client to ensure that internal review was by an independent second person compared to the person that prepared a document, and check digital access codes/passwords to see who can use them

Possible attribute: Data validation demonstrating rejection of invalid customer numbers (in a system that uses such numbers) /// Test of control itself: Enter test data (including customer numbers that are known to be invalid) or ask client personnel to enter the test data, and observe the computer system's response (should reject transactions)

Possible attribute: The stamp/signature/initial/digital system demonstrating authorized approval of credit limits and shipping documents /// Test of control itself: Examine a sample of sales orders and shipping documents to see if they actually have the approval markings &/OR Enter test data (including credit amounts that exceed pre-authorized credit limits) or ask client personnel to enter the test data, and observe the computer system's response (should reject transactions)
&/OR Examine credit limit exception report for approval markings

Possible attribute: Approvals for changes to the sales system itself (ex. Adding a new customer number or changing semi-permanent billing information) /// Test of control itself: Inspect "master file change forms" for approval sign-offs, and compare them to reports outlining changes in the master file itself

Possible attribute: Generation of sequentially prenumbered documents /// Test of control itself: Use generalized audit software to identify gaps and duplicates in prenumbering

Possible attribute: Issuance of monthly statements to customers /// Test of control itself: Observe month-end procedures, and inspect customer correspondence files

Possible attribute: Proof of independent verification of customer complaints in response to monthly statements /// Test of control itself: Inspect customer correspondence files
Need to ensure controls are reliable insofar as making sure all received cash is recorded in the cash receipts journal and is deposited in the company's bank account

Possible attribute: Segregation of duties /// Test of control itself: Check narratives, observe the preparation of the corresponding documents, observe the performance of tasks (especially opening of mail, deposit of cash/cheques, and recording of deposits by three different parties), check for job positions and authority limits of parties, and check digital access codes/passwords to see who can use them

Possible attribute: Use of remittance advices /// Test of control itself: Observe the opening of mail from customers (Is there a remittance advice from the customer with the payment? If not, does the client personnel prepare one on the spot?)

Possible attribute: Preparation of a cash receipts prelisting /// Test of control itself: Observe the client personnel in the process of preparing the prelisting &/OR Select a sample of filed prelistings and examine them for evidence of correct preparation (signatures/sign-offs, total supported by tape total or digital formula, presence of customer names alongside amounts)

Possible attribute: Immediate endorsement of incoming cheques (if the customer has not already done so with the company's name) - ie. writing "for deposit only - Company name" on the back of the cheque /// Test of control itself: Observe endorsement of cheques received

Possible attribute: Independent verification of cash receipt recording /// Test of control itself: Inspect CR documents (Cash department's copies of the deposit slips, prelistings, and cash summary) for evidence of review/match and approval markings for recording

Possible attribute: Issuance of monthly statements to customers /// Test of control itself: Observe month-end procedures, and inspect customer correspondence files

Possible attribute: Authorized use of POS to simultaneously record sale, cash received, and reduction of inventory /// Test of control: Observe whether POS usage is controlled (ex. Unique access codes and passwords)
Need to ensure controls are reliable insofar as recording only disbursements for goods/services actually received

Possible attribute: segregation of duties /// Test of control itself: Observe the cycle activities to see if there is any segregation between custody of cash (ie. cheques) and A/P recording functions &/OR Discuss system narratives and segregation policies with the client personnel at each stage of separation

Possible attribute: The full voucher package demonstrating authenticity of purchase cycle documents /// Test of control itself: Examine all documents included in a sample of voucher packages to see if the cash disbursement was warranted &/OR Confirm that the client already performed the examination of these documents prior to releasing the payment (ex. Observe the process, look for approval markings, discuss with the client, etc.) &/OR Perform an analytical procedure (not strictly a test of control, but can be helpful) to see if there are any unusual cash disbursements or voucher packages that need to be discussed further with the client

Possible attribute: Stamp/signature/initial demonstrating approval of the payment /// Test of control itself: Examine a sample of cancelled cheques to see if the payments were approved

Possible attribute: Endorsement and cancellation of cheques /// Test of control itself: Examine a sample of cancelled cheques to see if they had endorsement markings and cancellation markings on the back (ie. The client endorses the cheque to the bank via a signature and a message like "Pay to the order of" - ie. Specifies reason for the cheque and thereby proves that the client gave the bank permission to draw upon the account; the bank "cancels" the cheque when the funds are processed/issued to the payee so that the cheque cannot be reused)

Possible attribute: Details on cancelled cheques / cheque stubs (always remember that cancelled cheques are not necessarily voided cheques, they are just proof of paid/cleared cheques; Note that if a cheque does need to be voided, it is still cancelled to avoid reuse, but do NOT conflate one with the other) /// Test of control itself: Examine a sample of cancelled cheques to see if the name, amount, and date match the voucher package

Possible attribute: "Paid" stamp on the voucher package to deactivate it /// Test of control itself: Examine a sample of voucher packages to confirm that they have been marked as paid