Tests of Controls
Understanding
Controls
Documentati
on
Testing Controls
Reporting on
Controls
Knowledge check list
Responsibilities of Management wrt to Controls
Responsibilities of Auditors wrt to Controls
Understanding Control-Components of a Sound System of Controls
Documenting Controls (Advantages and Disadvantages of different methods of
documentation)
Testing Controls
Reporting Controls
Requirements: Some examples…
• For each of the two methods, NARRATIVE NOTES and QUESTIONNAIRES:
(i) Describe the method for documenting internal control systems; and
(ii) Explain an ADVANTAGE of using this method.
• Describe FOUR different types of control activities and, for each type, provide an example
control a company may implement.
• Identify and explain EIGHT deficiencies in Equestrian Co’s internal controls and provide a
recommendation to address each of these deficiencies.
Requirements: Some examples…
• In respect of the internal controls of Freesia Co:
(i) Identify and explain SIX deficiencies;
(ii) Recommend a control to address each of these deficiencies; and
(iii) Describe a TEST OF CONTROL the external auditors should perform to assess if each of
these controls, if implemented, is operating effectively to reduce the identified deficiency.
• In respect of the payroll system for Raspberry Co:
(i) Identify and explain FIVE KEY CONTROLS which the auditor may seek to place reliance on;
and
(ii) Describe a TEST OF CONTROL the auditor should perform to assess if each of these key
controls is operating effectively.
Reading and answering techniques
Control Deficiencies
Steps to Follow:
Step 1: Identify: Copy words from the question
Step 2: Explain: Discuss the implications of the deficiencies for the business
Step 3: Recommend: Explain what should be done/what the control would be like.
Reading and answering techniques
Control Deficiencies
½ mark for identification of deficiency
½ mark for explanation of implication
1 mark for recommendation
Reading and answering techniques
Control Deficiencies-an Example
Control Deficiencies
Recommendations
Physical verification of assets within the noncurrent asset register has not been undertaken
for some time.
A current programme has started but is only 15%
complete, due to staff shortages.
Additional resources should be devoted to
completing the physical verification of all assets
within the register. If any assets cannot be
located, they should be written off.
Following this full review, on a monthly basis a
If non-current assets are not physically verified on sample of assets at the sites should be agreed
a regular basis, there is an increased risk of assets back to the register to confirm existence.
being misappropriated or misplaced as there is
no check that the assets still exist in their correct
location.
Reading and answering techniques
Tests of Controls
Steps to Follow:
Step 1: Identify: The key control from the question by copying words
Step 2: Explain: Discuss the implications of the key control for the business
Step 3: Test of Control: Begin with a verb, mention what you are checking and why!
Reading and answering techniques
Tests of Controls
½ mark for identification of key control
½ mark for explanation of implication
1 mark for test of control
Reading and answering techniques
Tests of controls-Example
Key Control
Test of Control
Raspberry Co has a separate human resources Review the job descriptions of payroll and HR to
(HR) department which is responsible for setting confirm the split of responsibilities with regards
up all new employees.
to setting up new joiners.
Having a segregation of roles between human Discuss with members of the payroll department
resources and payroll departments reduces the the process for setting up new joiners and for
risk of fictitious employees being set up and also confirmation that the process is initiated by HR.
being paid.
Wrap up ‘Question’
A good question to attempt from the AA past exams
March/June 2018: Raspberry Co (a and b) (20 marks)