CAF 08 – Audit and Assurance

Control Sheet Prepared by: Kanwal Zafran

1. Controls over Sales System

➢ Sales Order Function

1. Segregation of duties (order and credit limit).

2. Authorization of credit limit by a separate department.

3. Credit limit checks.

4. Inventory balance checks.

5. Pre‑numbered sales orders.

6. Use of authorized rates and discounts.

7. All sales orders must be dispatched.

➢ Despatch Function
1. Segregation of duties (order, despatch, invoice).

2. Pre‑numbered Goods Despatch Notes (GDN) for every despatch.

3. Cross‑check GDN with sales order and obtain signature.

4. Customer acknowledgement of goods received.

5. Daily transfer of GDN to accounts for recording

➢ Invoicing / Billing Function

1. Segregation of duties (order, dispatch, invoice).

2. Pre‑numbered sales invoices.

3. Recalculation and cross‑checking of invoices with sales order and GDN.

4. Pre‑numbered and authorized credit notes (cross‑checked with invoice).

5. Invoices generated only after despatch of goods.

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➢ General Ledger / Accounts Function
1. Segregation of duties (invoicing, recording, collection).

2. Use of batch totals.

3. Control account reconciliation.

4. Monthly customer account statements.

5. Aging analysis to identify overdue balances and follow‑up.

6. Authorization of bad debts.

❖ General Controls:

• Timely transfer of sales orders, GDNs, and invoices to the next department.
• Preparation of a list linking sales orders with related sales invoices and GDN numbers.

2. Controls over Purchases System

➢ Purchase Order Function

1. Segregation of duties (user and ordering department).

2. Approved supplier list with access controls.

3. Obtaining quotations / bids.

4. Orders placed only with approved suppliers at lowest quotation.

5. Authorization of all purchase orders.

6. Purchase orders to be written and pre‑numbered.

➢ Receiving Function
1. Segregation of duties (order, receiving, invoice).

2. Pre‑numbered Goods Received Notes (GRN) for every receipt.

3. Cross‑check GRN with purchase order and obtain signature.

4. Daily transfer of GRN to accounts for recording.

5. Physical inspection of quantity and specifications against PO.

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 ➢ Invoicing / Billing Function
1. Segregation of duties (order, receiving, invoice).

2. Recalculation and cross‑checking of supplier invoices with PO and GRN.

3. Verification of supplier discounts.

4. Pre‑numbered and authorized debit notes for purchase returns (cross‑checked with invoice).

➢ General Ledger / Accounts Function

1. Complete audit trail maintained (PO, GRN, Invoice).

2. Use of batch totals.

3. Control account reconciliation.

4. Monthly supplier account statements.

5. Pre‑numbered and authorized debit notes.

❖ Additional Control:
• Periodic checks on accuracy of supplier invoices.

3. Controls over Payroll System

➢ Calculating Gross Wages and Salaries

I. Only for real employees:

1. Segregation of duties (HR, Payroll, Payment).

2. Authorization of appointment and pay by HR.

3. Pay authorization by HR.

4. Authorization of new employees by HR.

5. Communication of resigned employees to payroll and HR.

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 II. Only for real work:

6. Pre‑numbered and authorized timesheets or monitored clock‑card system.

7. Approval of overtime and bonuses.

8. Use of authorized timesheets and pay rates.

III. Accuracy of calculation:

9. Application of range tests.

10. Recalculation and approval of payroll by an independent person.

➢ Calculation of Tax and Other Deductions

1. Use of latest tax rates.

2. Authorization of voluntary deductions by employees.

3. Recalculation and approval of deductions by an independent person.

➢ Payment of Wages and Salaries

1. Authorization of payments by CFO (total and individual).

2. Confirmation of employee identity before payment (cash or bank transfer).

3. Reconciliation of salaries payable with salaries paid.

4. Timely payment of statutory and other deductions.

➢ Recording Payroll in Accounts

1. Use of authorized payroll records.

2. Timely recording of payroll transactions.

3. Reconciliation of payroll file with general ledger.

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4. Controls over Inventory System

➢ Recording Inventory
1. Segregation of duties (ordering, custody, recording).

2. Proper documentation of inventory records.

3. Accurate and timely recording of receipts.

4. Accurate and timely recording of issues.

5. Monthly reconciliation of inventory (purchases, sales, closing balance).

➢ Physical Safeguarding of Inventory

1. Restricted physical access.

2. Inventory counts and reconciliation.

➢ Valuation of Inventory
1. Updated standard costing.

2. Identification of obsolete or slow‑moving items (aged or damaged inventory).

➢ Management of Inventory Levels

1. Monitoring and control of inventory levels.

➢ Inventory Count Instructions

1. Stop inventory movement during count.

2. Counting team should be:

3. Independent of warehouse department.

4. Experienced and permanent employees.

5. Given precise and specific instructions.

6. Inventory count sheets should be:

7. Pre‑numbered with description of goods.

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8. Without book quantities.

9. Signed by each team member.

10. Completed in ink (not pencil).

11. Inventory should be:

12. Marked or tagged when counted.

13. Separately identified if damaged.

14. Separately identified if held on behalf of third parties.

5. Controls over Non‑Current Assets System

➢ Authorization of Additions / Deletions

1. Authorization of asset purchases and disposals.

2. Approval of invoices.

3. Sequential numbering of fixed assets.

4. Updated fixed asset register.

➢ Recording of Expenditures
1. Marking invoices for correct classification.

2. Recording in appropriate accounts.

3. Periodic reconciliation.

6. Controls over Cash and Bank System

➢ Cash Receiving
1) Segregation of duties (receiving and recording).

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➢ Cash received through post:

1. Monitoring of mail‑opening process.

2. Listing of cash received by an independent person.

➢ Cash sales (counter sales):

1. Restricted employees authorized to receive cash.

2. Till rolls or cash receipts for every transaction.

3. Reconciliation of cash received and recorded by an independent person.

➢ Controls to ensure all money is banked:

1. Prompt banking of cash.

2. Matching bank deposits with receipts and cash book.

➢ Cash Payments
1. Supporting documents for all payments.
2. Cancellation of supporting documents after payment.
3. Authorization of payments.
4. Prompt recording of payments.

➢ Cash Balance

❖ Cash in Hand:

1. Restricted employees authorized to handle cash.

2. Cash kept in heavy locked box in a secure place.

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❖ Bank Balance:

1. Established procedures for opening new bank accounts.

2. Segregation of duties.

3. Secure cheque books (not pre‑signed).

4. Preparation of bank reconciliation statements.

5. Controls over electronic cheque preparation devices.

❖ Petty Cash

1. Reasonable petty cash limit (e.g. one month’s expenses).

2. Petty cash kept in a heavy locked box or locked drawer in a secure place.

3. Spending only on pre‑approved expenses.

4. All spending supported by documents and recorded on sequentially pre‑numbered petty cash

vouchers.
5. Surprise petty cash checks by an independent person.

6. Periodic recording of petty cash expenses in general ledger after review by finance manager.

7. When petty cash is topped up, withdrawal from bank equals total petty expenses recorded.