Purchase
Direct controls Test of controls Reference
Authorization of purchase orders Select a sample of purchase orders 227
This ensure that goods are only and review for evidence of
purchased which are required by Swift authorization in accordance with
& Co and relate to genuine business authorization limits. Agree this to
xpense appropriate signature on the approved
signatures list.
GRN is agreed to purchase order and Observe warehouse department when 227
singed for check receiving goods to understand the
This ensures that Swift Co is not level of checks being undertaken.
recording liabilities and subsequently
paying for the receipt of inferior Review sample of GRNs held in the
quality goods or for goods it did not warehouse department for signature,
order as evidence of check being undertaken
on receipt of goods.
Utilizing control totals Select a sample of control total sheet 227
Utilizing control totals ensure both and review for evidence of control
completeness and accuracy of over the totals being utilized and the clerk’s
input of purchase invoices. If the signature.
invoices are not all input completely
and accurately payables may be
misstated.
Supplier statement reconciliations Review the file of reconciliations to 227
This ensure any errors in the recording ensure that they are performed on a
of purchases and payables are regular basis and that they have been
identified and corrected on a timely reviewed by responsible official.
manner and therefore the payables
are accurate and complete Reperform a sample of reconciliations
to ensure that they have been carried
out appropriately and discrepancies
investigated.
Authorization of bank transfer list Review the payment list for evidence 227
This reduce risk that supplier being of review by FD.
paid incorrect amount, or that sum Enquire of accounts staff what
being paid to fictious suppliers which supporting documentation the finance
will cause misstatement of payables. director request when undertaken the
review.
Invoices marked as paid Inspect file of paid invoices and ensure 234
This prevents invoices being paid they are kept away from not yet paid
twice, which would result in invoices. Inspect them for evidence
unnecessary cash outflow and that they have been stamped as ‘paid’
understatement of payables.
Segregation of duties (payment and Observe the process of payment from 234
recording cash) the cashier’s office to ensure
There’s a segregation of duties which segregation of duties is in place.
prevents fraud and errors as one Inspect the accounts team
individual is not responsible for organizational chart to ensure
physical cash and updating ledger appropriate segregation of duties
which would enable someone to between cashier’s office and purchase
conceal the fraud. team.
This reduces the risk of misstatement
of payables and cash balances
Sales
Direct controls Test of controls Reference
New system tested The audit team should review the 224
This reduces the risk that data is lost procedures and documentation
or data is not processed correctly if relating to the testing which has been
there are issues associated with the undertaken and agree that the tests
operation of the new system. This undertaken are appropriate and that
reduces the risk of processing errors any errors were fully investigated and
and misstatements in the accounting resolved.
records.
Credit checks by automated system The audit team should select a sample 224
Credit checks reduce the risk of lost of new customer account opened in
revenue and uncollectable trade the period and confirm, by reference
receivables as only creditworthy on information on system, that credit
customers are able to place orders. check has been performed.
The automated system should ensure
that no bias included in accepting They should also agree there’s
creditworthy customers or setting evidence of approval, by way of
which ensure credit limits are set signature, by the sales director before
appropriate and that receivable is credit limits are set.
recoverable.
Aged receivables review The audit team should obtain copy of 224
This ensures that debts are collected aged receivables report downloaded
on timely basis which reduce the risk and confirm there’s evidence of
of irrecoverable debts. It should also review, such as signature, by
ensure that balances are irrecoverable receivable clerk.
and account for it.
The audit team should enquire as to
receivables balances are passed to
credit control and should confirm this
is appropriate based on company’s
credit control policy.
The audit should review sample of
follow-up documentation from credit
control to ensure action is taken.
Account reconciliations The audit team should review the file 224
Regular reconciliations ensure that of reconciliations and confirm these
receivable balance is accurately are being performed on monthly basis.
presented in financial statement.
Timely identification and correction of For a sample of reconciliations with
errors ensure that recording issues are reconciling items trace supporting
resolved and the accounting records documentation to confirm errors have
are accurate. been corrected.
Review by financial controller ensures
accuracy of reconciliations. The team should review the
reconciliation for a signature as
evidence of approval or review by the
financial controller.
System changes monitored by IA Inspect IA department’s 234
This reduces the risk of errors, loss of documentation of the changeover of
data and incorrect processing of the receivables system and checks
information which could result in made to ensure that the checks have
misstatement in receivables. been performed and that they were
completed appropriately.
For a sample of receivables, agree data
in the old system to data in the new
system at several points in time during
the year.
Credit checks and credit limits set and Inspect a sample of customer files to 234
reviewed regularly ensure credit check has been obtained
This means that sales are only being and review the date it was performed
made to customers that are likely to to ensure it’s up to date.
pay in full and in time, reducing the
risk of irrecoverable debts and Inspect evidence of credit limits
overstatement of receivables. review performed by the sales
manager during the year.
For a sample of customers whose
credit limit has changed in the year,
obtain the credit limit review form and
inspect evidence of authorization by
sales manager.
Use of approved price list Inspect the price list for approval by 234
This means that up to date prices are directors and review the last modified
used when the invoices are raised, date to ensure it has been reviewed in
reducing the risk of errors when the last three months.
raising invoices and ensuring accuracy Agree the prices in the system to the
of revenue. approved price list.
Obtain a copy of current price list, and
for a sample of invoices, agree that the
correct prices have been used.
Authorisation of sales discounts With Equestrian Co’s permission, 234
This reduces the risk of fraud which attempt to process an invoice with a
will result in misstatement of revenue. sale discount that has not been
authorized by sales director, the
system should reject it.
Inspect a sample of sales order with a
discount given for evidence of
director’s signature authorizing the
discount and confirm the discount
given is within the approved range of
2% to 10%.
Payroll
Direct controls Test of controls Reference
Employees use ID card and CCTV and Observe the use of staff ID cards by 220
security supervise the process. employee entering the distribution
This ensures that genuine employees depots and confirm that security staff
are only paid for the work done and are supervision the process.
reduce the risk of employees being
paid but not completing their required Review footage from CCTV cameras
hours. In addition due to supervision for a sample of depots to confirm the
and cameras, it’s unlikely that one sign in process is recorded and
employee could sign on behalf of supervised by security staff.
other employees.
Password updated monthly The audit team should supervise an 220,226
This prevents unauthorized access to attempt by payroll manager to access
standing data. the standing data using an out of date
This reduce the likelihood of mistake password, the system should reject it.
or unauthorized changes leading to
fraud or incorrect payment of wages.
Gross to net checks For a sample of weeks, review the 222,226,227
This reduces the risk that automated gross to net pay for evidence that
system generates errors during the calculations have been performed.
payroll processing. Any errors would Confirm the signature of the payroll
be identified on timely basis to supervisor as evidence that they have
prevent wages being over/underpaid. reviewed the report.
For a sample of weekly payroll,
reperform the gross to net pay
calculation and compare to the
payroll system. Discuss any
discrepancies with the payroll
supervisor.
Enquires with payroll supervisor
whether any discrepancies have been
noted during the year between the
gross to net pay calculation and the
figures generated by the payroll
system and how these are resolved.
Revised rates Obtain the payroll listing for the 222
This reduces the risk of input errors factory staff used for the pay rate
resulting in over/underpayment of increase and review for evidence of
wages and salaries to employees. signature by the senior clerk who
checks for input errors.
The pay packets are prepared by two For a sample throughout the year, 222
staff members inspect the weekly payroll listing for
This ensures there’s segregation of evidence of signature by two
duties and reduce the likelihood of members of staff involved in the
errors of staff members fraudulently preparation of the pay packets.
increasing the pay packets for friends
or family members without being Observe the preparation of pay
identified. packets to ensure that one member
prepare wages using the system
generated payslips and that the other
member checks pay packets for
accuracy.
Sequence checks for key cards For a sample of key cards and data 226
This ensure that payroll records are recorded in the cloaking-system,
complete, that employees are paid for carry out sequence check to identify
hours worked and all hours are if there’re any gaps in the sequence.
recorded Review details of checks carried out
by HR supervisor to identify any gaps
in the sequence and check they have
been evidenced their review by way
of signature.
HR review of clocking in process For a sample of weeks, review the log 226
Therefore, it’s unlikely that one of recordings to identify who
employee could sing on behalf of reviewed that week’s footage to
other employees, hence employees ensure it has been reviewed by
will only be paid for actual hours member of HR department.
worked ensuring occurrence in payroll.
Review the log for any gaps in the
review process and discuss these
finding with HR
Account reconciliations performed For a sample of months, review the 226
This will ensure the payroll expense payroll account reconciliations and
and employment tax liability is make enquires of the finance director
accurate and not misstated in the year of any errors, how they arose and
end financial statement what action was taken to ensure they
don’t arise in the future.
Reperform a sample of account
reconciliations and compare to the
results with those prepared by the
finance director. Discuss
discrepancies with the finance
director.
Tax liability calculation reviewed by FC For a sample of months, review 226
This ensures the amount paid to the calculations of the employment tax
tax authority is correct. It also creates liability for evidence of review by the
a segregation of duties between financial controller confirming the
payroll supervisor calculating the calculation is correct and the
liability and financial controller payment is made.
reviewing the calculation which
reduces the risk of errors.
HR set up new joiners Review the job description of payroll 227,228,232
Having a segregation of rules between and HR to confirm the split of
HR and payroll department reduce the responsibilities with regards to
risk of fictious employee being set up setting up new employees.
and being paid which would result in
overstatement of payroll costs. Discuss with members of the payroll
department the process for setting up
new joiners and agree new joiners to
documentation initiated by HR.
Pre-printed new joiner forms Select a sample of new employees 227,228,232
The use of pre-printed forms ensures being added to the payroll during the
that all relevant information, such as year, review the joiner forms for
tax IDs, is obtained about employees evidence of completion of all parts
prior to set up. This minimizes the risk and that information was verified as
of incorrect wage and tax payments accurate and was received by payroll
and the associated misstatement of prior to being added to the system.
payroll costs.
Attempt to add a new joiner to the
As payroll staff is unable to set up new payroll system without unique
joiners without the employee number employee number, the system should
from joiner form it reduces the risk of reject this addition.
fictious employees being set up by
payroll
Exception report is reviewed Select a sample of monthly exception 227
This ensures that any unauthorized reports and review for evidence of
amendments to the standing data are review and follow up any unexpected
identified and investigated on a timely changes by the payroll manager.
basis, so the data used when payroll is
run is valid and accurate.
Non-current assets
Direct controls Test of controls Reference
Revenue or capital expenditure is Select a sample of purchase orders for 220,228
classified formal company policy. asset and review evidence of the
This should reduce the risk of incorrect classification being applied.
assessment and of understatement
/overstatement profits, non-current Review purchase order for evidence of
assets and depreciation charge. finance director’s sample checks, for
example, by signature.
For a sample of orders, compare the
classification noted by the formal
company policy to assess whether the
classification was correctly
undertaken.
Bank and cash
Direct controls Test of controls Reference
Bank reconciliation Review the file of bank reconciliations 228
The bank reconciliation is a key control to confirm that there’s one for each
which reduces risk of fraud. Monthly month. Inspect a sample of monthly
review and investigation ensure that reconciliation for evidence of
fraud and errors are identified on investigation and review by the
timely basis, reducing the risk of financial controller.
misstatement of the bank and cash
balance For a sample of months reperform the
bank reconciliation and where
differences have occurred investigate
these with the financial controller
Daily till reconciliation For a sample of stores visited, the 235
Daily cashing up procedures should auditor should review the file of daily
ensure that cash is controlled and reconciliations to ascertain if end of
reduce the risk of fraud through theft each day till reconciliations have taken
as employees are aware that the place on a daily basis.
assistant manager will be looking for For reconciliations with discrepancies,
cash discrepancies. discuss with store manager what
This reduces the risk of misstatement actions were taken and how these
with cash balance. differences were resolved.
Cash collected by security company During the store visits, enquire of staff 235
This ensures that cash is safeguarded how the cash is transferred to the
and that the risk of theft when bank.
transferring to the bank is minimized. A sample of invoices from the
This reduces the risk of misstatement collection company should be reviewed
within cash balance. and confirmed that charges are made
for daily collection.
In addition, during these visits observe
the cash collection process carried out
by the security company.
Data transfer to head office During the interim audit at head office, 235
This should ensure that sales and cash compare the daily sales reading from
records are updated promptly and are individual stores, including some
complete and accurate. visited by the audit team, to sales and
cash receipts records within the
general ledger. Review the date on
which the sales and cash receipts were
updated to ensure this occurred
promptly. Any discrepancies should be
discussed with the clerk responsible for
overseeing this process.
Checks on amounts banked Discuss with the clerk responsible for 235
This should ensure the completeness reconciling the cash and credit card
of cash receipts, as they are transferred receipts, the process undertaken.
in from two sources, being the security Review the daily reconciliations the
company and the credit card operator. clerk has completed to confirm the
process has undertaken as described.