CONTROLS IN EXISTENCE FOR TRANSACTION RELATED AUDIT OBJECTIVES
Audit Objective
Occurrence – The property
included in the asset list
actually exists.
Controls
The supervisor loads the
assets from SAP to PTR.
A separate person
prepares the tax return.
Test of Controls
Observe separation of
duties.
Completeness – Ensure the
recording of all purchases
and disposals of assets.
Correctly categorize assets
as either capitalized assets
and n
Compare prior year’s
return to check for
changes.
Check prior years
return to review the
changes.
Contact business unit
Financial Managers and
confirm changes.
Record all the
transactions according to
the company’s policy.
Review
correspondence and
telephone
conversation records.
Determine if all the
steps of the checklist
are complete.
Check records of
assets purchases and
disposals during the
year.
Rights and Obligations –
The corporation controls
and owns the assets. The
company has the obligation
to pay taxes on it.
Review whether any
assets were disposed of
or purchased during the
year.
Valuation or Allocation –
The costs of the assets
reported are at their correct
amount.
Compare new ass with
similar assets on record.
Compare costs of new
assets to market value
with suppliers.
Contact business unit
Financial Managers and
confirm costs of new
assets if there are
discrepancies.
Compare cost of new
asset with amount
reported for similar
assets on previous
year’s returns. Check
if any material
amounts.
Find and correct all the
mistakes on the tax
return.
Review
correspondence
between preparer and
Finance managers.
Head intern reviews
the return and pass on
Review Notes form to
intern for necessary
corrections.
Classification – Be sure to
record assets under correct
categories.
Check for unspecified
and un-descriptive assets
listed as “other” and
verify correct category
with list provided.
Review and confirm
changes to asset
categories are correct.
Cutoff – Assets purchased
after the end of the tax year
are not included in the tax
return.
Check acquisition date
on record by doing a
filter by year.
Check that the date on
record matches with
dates of purchase
invoice.
Make sure no assets
purchased after end of
year are included.
Authorization – Restrict
access to documents and
data to authorized users
only.
Passwords are required
to access documents.
Check to see whether
only authorized
passwords can log into
the company’s
computer.
Issue each person a
separate password that
gives access only to
employee’s specific
authorization level.
Periodically ensure
that individuals are not
leaving their computer
without logging out.
Restrict access to
unauthorized individual
using other users’
password.
Check for changes in
passwords every three
months as required.
Perform data backup
every 4 hours by
authorized supervisor.
Check if the
authorized supervisor
has done the backup
properly only.
Computer OperationsTake actions to facilitate
the backup and recovery of
important data.
DISNEY PROPERTY TAX FLOWCHART
Intern
Head Intern
Assistant
Treasurer
Supervisor
Continued
from Page 2
Save to e-file
folder
Print
Provide Tax
Return to head
intern
Initial and Date
the Pink Slip
Initial and Date
the Pink Slip
Yes
Review Return,
Is Information
Complete and
Correct?
Yes
No
Review Return,
Is Information
Complete and
Correct?
Complete Review Notes
Form for Corrections to
be Made
No
Complete Review Notes
Form for Corrections to
be Made
Correct
Return
Mail
Tax Return to
County
File copy in
the file room
by company
code
Yes
Sign Tax Return
S-1
S-2
S-9
Assertion
Completeness- All
organizers, E-File
authorization forms, and
engagement letters should
have been mailed to the
client.
Completeness- All of the
documents that are
required in order to prepare
the tax return should be in
the client’s file.
Completeness- All steps on
the routing sheet have been
signed off on.
Completeness- The tax
return was electronically
filed with both the federal
and state government.
Controls
A list of clients whose tax
returns were done last year
should be printed. All clients
on this list should be mailed an
organizer, E-File authorization
forms, and engagement letter
this year.
Each partner should sign the
organizer before it is mailed
out.
All income and expenses from
the previous year should be
present on the current year’s
tax return, unless otherwise
specified by the client.
If any income or deductions are
not expected this year there
must be a written note from
the client stating so.
After each step of the process,
someone must sign off on the
routing sheet to show that they
performed a certain task.
An activity report shows that
the return has been accepted
by both the Federal and State
government.
S-7
The client letter shows the date
that the return was accepted
by each government agency.
Accuracy- The tax return has
been entered accurately
into Lacerte.
S-3
The amounts on the source
documents should match the
amounts on the tax return.
Tests of Controls
Compare the list of clients from
last year to the list of clients
who were mailed these forms
this year.
Compare the list of clients from
last year to the list of clients
whose organizers each partner
signed this year.
Compare the documents that
were received this year to last
year’s documents.
Check the file for a written note
from the client regarding any
missing information.
Check the routing sheet to
make sure each step has
someone’s initials and the date
the task was complete.
Check the file to see if an
activity report has been printed
that shows the date and time
that the return was
electronically filed.
Read the client letter to see if it
says that the return was
electronically filed and on what
date.
Valid Character Test- Lacerte
will not allow letters to be input
in a field that requires only
numbers, or numbers to be
entered into fields that require
only letters.
Missing Data Test- Lacerte will
not allow a tax return to be
printed or E-Filed if a field that
requires information, such as a
social security number or date
There should be no critical
diagnostics on the return.
S-4
Accuracy- The tax return has
been entered accurately
into Lacerte.
All of the source documents
that are in the file should be
correctly portrayed on the tax
return.
Accuracy- The tax return has
been entered accurately
into Lacerte.
The client approved the tax
return for filing.
Existence- All of the
numbers entered on the tax
return can be found on a
source document in the file.
Existence- All of the
numbers entered on the tax
return can be found on a
source document in the file.
Classification- All income
and deductions are
recorded in the proper
place.
All of the source documents
that are in the file should be
included on the tax return.
Sort the source documents by
type (Income, Deduction) and
trace them to the tax return.
Every number on the tax return
(unless calculated) should be
found on a source document.
Perform vouching- make sure
every number on the tax return
can be found on a source
document in the file.
Verify that source documents
and the tax return agree.
Verify that all income and
deductions were entered in the
proper place on the return.
Check the names and social
security numbers on the source
documents to ensure that they
belong to the client.
Compare this year’s tax return
to last year’s tax return.
Check the file for written
verification is any amounts are
substantially different from the
previous year’s return.
Make sure that all of the forms
that are available in Lacerte for
S-6
S-4
S-5
S-5
S-3
S-5
of birth, is left empty.
Error Correction and
Resubmission- Check the
diagnostics on the tax return to
see if there are any critical
issues.
Perform tracing to make sure
that all of the source
documents in the file are
traceable to an exact number
on the tax return.
Check the file for any e-mail or
fax communication from the
client that specifically says that
they give Arxis Financial
permission to file their tax
return.
Check the routing sheet to see
if it has been initialed that the
client was sent a draft copy and
that the draft was approved.
All documents are sorted by
type and entered in the tax
organizer before being entered
into Lacerte.
Rights and Obligations- The
client has the rights to the
income and deductions
being entered on the return.
Valuation and AllocationIncome and deductions are
recorded in the tax return at
appropriate amounts.
No income or deductions are
entered unless there is an
original source document for
the income/deduction.
No income/deductions can be
entered that are substantially
different from the previous
year without obtaining written
verification from the client.
Understandability- The
assembled return is clear
The assembled return should
clearly and accurately portray
and concise.
S-8
the client’s income and
deductions for that year.
that client have been printed
and neatly stapled to a client
copy folder.
Check the client letter to make
sure that their refund or the
amount they owe is clearly
stated as well as where they
must send the return and by
what date.
Attachment B
Preparing an Individual’s Income Tax Return
Partner
CPA
Staff Accountant
Pg 1 of 2
Intern
START
Mail tax organizer,
engagement letter,
& E-File
authorization
forms to clients
S-1
Schedule a review
appointment with
client
Meet with client;
Collect all relevant
tax documents,
including signed
engagement letter
and E-File
authorization
forms
S-2
Have all
documents
been
collected?
Copy all
documents; Sign
off on routing
sheet for copying
the documents.
Yes
No
S-3
Collect
missing
data from
client
S-9
S-5
S-9
S-9
Prepare tax
return in
Lacerte. Sign
off on routing
sheet for
preparing tax
return
Print a review copy
of the return. Put
on the detail
review shelf.
Issue review the
return. Sign off on
the routing sheet
for issue review.
Set up
the
client file
Detail review the
return. Sign off on
the routing sheet
for detail review. If
there are any
errors or
questions, write
them on the query
sheet.
S-4
Are there any
errors on the
return?
No
See pg
2
Yes
Make corrections
to the return.
S-9
Purchasing
Receiving
Prepare Wood
Purchase Order
(PO)
Accounts Payable
Controller
Treasure
Package PO (2), PO
(3), Vendor Invoice,
& Packing Slip
Receive Packages
Files, Checks,
Check Stubs & Tape
Receive Packages
File, Checks, Check
Stubs,
& Signed Tape
Post Check
Amounts to Cash
Disb. Book
Review all
Supporting
Documents
Compare
Calculator Tape to
Cash Disb. Book
Sign the Checks
Does tape match
disb. book’s totals?
Return File, Signed
Checks, Check
Stubs, & Signed
Tape
PO Pink Copy (3)
PO White Copy (2)
Prepare a
Packages File
Receive PO (3)
PO Yellow Copy
(1)
D
Check Wood
Received & Sign
Vendor’s Packing
Slip
Send PO (1) to Vendor
Pull out the
Packages File 10
Days before Due
PO (2)
Accurate?
Yes
No
Used as Control
& Open Order
Follow-Up
No
Yes
Warehouse
Manager Accepts
or Objects
N
Prepare Checks &
Check Stubs
1
Sign Tape
Object
Accept
Receive Vendor Invoice
Pull PO (2) &
Check against
Vendor Invoice
Match?
No
Note Vendor
Invoice No. on
Checks & Stubs
Send PO (3) &
Packing Slip
1
Used as Control
& Open Order
Follow-Up
Prepare a
Calculator Tape of
all Payments
Gather
Send Files,
Invoices,
Checks,
Pos,
Checks,
Check Copies,
& Checks
&
Signed
Copies
Tape
Receive File, Signed
Checks, Check
Stubs, & Signed
Tape
Mail Checks to
Vendors
Yes
Assign Vendor
Invoice No. &
Record Purchase
Send PO (2) &
Vendor Invoice
N
Send the Packages
File, Checks, Check
Stubs, & Tape
Stamp Vendor
Invoices “Paid”
File the
Paperwork by
Invoice No.
N
Discount Hardwood Floors and Molding, Inc.
Audit Program, Test of Internal Controls -- Purchasing Cycle
3/29/2009
Performed by
Scope and Understanding:
1. Obtain a sufficient understanding of the company’s purchasing system
and related internal controls.
2. Document the understanding of the company’s purchasing system internal
controls in working papers and permanent files.
Research and Planning:
1.
2.
3.
4.
Become familiar with any purchasing guidance.
Review prior year purchasing system audit working papers.
Identify and document any deficiencies in the prior year working papers.
Determine if there are other prior internal control deficiencies that will
impact the scope of the purchasing cycle audit for this year.
5. Review the company’s written purchasing policies and procedures.
6. Examination information systems documentation
a. Determine the degree in which a computerized system is used in
the purchasing cycle
b. Review how the relevant data is imported into the accounting
system
c. Examine how the master files are affected by the system
Risk Assessment:
1. Prepare an initial risk assessment to determine the initial scope of the
examination by using the information obtained in the scope and research
and planning portion.
Control Environment:
1. Evaluate prior years documentation related to the company’s control
environment and assess the impact it has on the purchasing cycle.
2. Observe the company’s integrity and ethical values.
3. Understand the company’s commitment to compliance.
4. Examine management’s philosophy and operating style.
5. Review the company’s organizational structure.
6. Understand the company’s assignment of authority and responsibility.
7. Determine the company’s financial capability and ability to meet internal
and external goals.
8. Document the understanding of the aforementioned steps.
Ref.
Control Risk Assessment:
1. Meet with responsible personnel to obtain an overview of the various risk
factors.
2. Once the factors have been identified, obtain an understanding of how the
management identifies and assesses the risks.
3. Obtain plans or identify actions taken by management to address the risks
identified.
4. Document the overall understanding of the company’s risks as it pertains
to the purchasing cycle.
Test of Internal Controls:
1. Occurrence:
a. Observe a separation of duties between the departments involved
in the purchasing cycle.
b. Check that the purchase orders agree with the vendor invoices
and packaging slips.
c. Ensure that the vendor names, product descriptions, terms, dates,
and quantities match the purchase orders.
d. Check that the paid vendor invoices are stamped “PAID”.
2. Completeness:
a. Trace the receiving reports (invoices and purchase orders) to the
cash distribution book.
3. Accuracy:
a. Examine the purchase orders for proper authorization.
b. Observer how the receiving personnel compare the purchase
orders to the packing slips.
c. Compare cash distribution book to calculator tape and check
stubs.
d. Recalculate the procedures performed by bookkeeper and
controller.
4. Cutoff:
a. Compare the date the account payable is recorded to the date the
merchandise is received.
5. Classification:
a. Observe the use of the chart of accounts.
b. Examine evidence of journal entry reviews.