Audit controls and procedures – reading comprehension worksheet

Which of the following controls is most likely to provide assurance that all sales have been recorded in the accounts?

• Matching pre-numbered sales invoices to despatch notes

• Sales manager authorising all invoices before they are issued

• Matching pre-numbered despatch notes to invoices

• Preparing and following up an aged receivables analysis by someone independent of the sales ledger function

Which TWO of the following controls of a sales system ensure that all goods despatched are completely and accurately invoiced? 1. Goods despatched notes are matched to sales invoices 2. Sales invoices are sequentially numbered 3. Sales invoices are matched to customer orders 4. Regular review of unfulfilled orders

• 1 and 2

• 1 and 4

• 2 and 3

• 2 and 4

An auditor has identified the finance director’s review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the finance director to understand the specific data reviewed on the reconciliation and then verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the finance director as evidenced by their respective signatures. Which of the following types of audit procedures do these actions illustrate?

• Inquiry and inspection of records

• Confirmation and reperformance

• Analytical procedures and reperformance

• Observation and inspection of records

Which TWO of the following procedures are tests of control? 1. Inspecting documentation for authorisation to ensure that a new customer’s credit limit has been set by a responsible official, independent of the credit control function 2. Observing employees engaged in the year-end inventory count to ensure that none have involvement with the receipt and issue of inventory items 3. Inquiring of client staff to ascertain whether internal control deficiencies, identified in the previous audit, have been rectified 4. Inspecting invoices to confirm travel and entertaining expenditure incurred during the accounting period

• 1 and 2

• 1 and 4

• 2 and 3

• 3 and 4

Which of the following is an information processing control?

• An access control to ensure that users use their assigned log-in credentials

• Edit checks to identify and report transactions that exceed specified limits

• Management approval of data converted from a legacy system to a new system

• Segregation of duties between those who can access and those who can change programs

Which of the following is a general IT control?

• Regular back up of financial data

• Numerical sequence checks on input data

• Management review of monthly reconciliation of bank statements

• Tagging items of plant and equipment with radio frequency identification

Bonsai Trading Co manufactures electrical equipment. As audit supervisor of Poplar & Co, you are developing audit programmes for the forthcoming interim audit. The internal audit documentation for the non-current assets cycle shows these controls: capital expenditure purchase orders are authorised by the capital expenditure committee; each asset received is assigned a unique serial number recorded on the asset and in the non-current assets register; a goods received note (GRN) is completed and its classification is reviewed and initialled by a responsible official; and internal audit periodically compares assets on site to the register using serial numbers. In relation to these controls, which TWO of the following are tests of control that should be performed during the interim audit?

• Review a sample of capital expenditure purchase orders for evidence of authorisation by the capital expenditure committee

• From a list of serial numbers extracted from the non-current asset register, select a sample of assets purchased and verify their physical existence

• Select a sample of GRNs and confirm whether each GRN is initialled as reviewed by a responsible official

• Accompany internal audit on its next review of the asset ledger, select a sample of the serial numbers confirmed by internal audit and verify the existence of the assets

For Bonsai Trading Co, you plan to test the control in which the financial controller reviews the bank reconciliation. In connection with this test, you (1) interview the financial controller to understand the specific data he has reviewed, and (2) verify that the bank reconciliation is properly prepared by the accountant and reviewed by the financial controller as evidenced by their respective signatures. These actions are examples of which of the following types of audit procedure?

• Inquiry and inspection

• Confirmation and reperformance

• Inquiry and observation

• Observation and inspection

Substantive procedures are most likely to be performed during the interim audit on an account balance that is subject to which of the following?

• Fluctuations based on management’s discretion

• Very little movement from year to year

• A high level of inherent risk and control risk

• Unpredictability in terms of its relative significance to the financial statements

Shortly after the interim audit at Bonsai Trading Co, a payroll clerk was found to have set up fictitious employees and paid wages into the clerk’s own bank account. Because of the increased risk arising from this payroll fraud, which TWO of the following procedures should you undertake?

• Review board minutes for evidence of management’s discussion of the materiality of the payroll fraud

• Review the supporting documentation to confirm the total of the fraudulent payments and assess the materiality of the misstatement

• Recommend and assist Bonsai in implementing better controls over payroll

• Inform local law enforcement authorities of the fraud and name the payroll clerk