Category Archive for: Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment

Suggest some measures to improve effectiveness of management letter

1. The letter should be issued immediately after interim audit. 2. If the letter sets out weaknesses in the operation of controls, give some examples of non-compliance. 3. The letter should give constructive recommendations. The tone of the letter should not give impression to staff that they are being criticized. 4. Response of management, as to…

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ENTITY’S RISK ASSESSMENT PROCESS

The study of entity’s risk assessment process comprises the risk assessment relating to reliability of financial statements. (a) What risks have been identified by the management? (b) Significance of each risk (c) Likelihood of occurrence (d) Actions to manage the risks (e) What risks have not been identified? For example, if the management has not…

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Questions And Answer

What is the relationship between strategies of an entities and internal controls? There is direct relationship between the strategies and internal controls because controls are established to attain the objectives. For example if one of the objectives of the entity is orderly and efficient operations, controls may be established to reduce wastage of material and reduce overtime.…

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Inherent risks

(a) New markets and products (b) . Current and prospective financial requirements, and increased gearing (c) Frequent change in accounting staff (d) Transactions with related parties (e) Increased gearing (f) Inadequate security of IT system (g) Entity may not have the personnel or expertise to deal with new products. Also there is increase product liability.…

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List down some control activities relating to petty cash

1. Petty cash box should be kept in the safe 2. Petty cash vouchers should be pre numbered 3. Petty cash imprest should not be too excessive 4. Petty cash funds should not be used for large amounts 5. Petty cash vouchers should be signed by an independent official 6. Petty cash should be counted…

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Suggest some segregation of duties regarding

(a) Fixed assets (b) Inventories (c) Payroll (d) Sales (a) Fixed assets Following duties should be segregated Approval of acquisition and disposal of fixed assets Maintenance of fixed assets register Custody of assets (b) Inventories Following duties should be segregated Approval of purchases Receiving Physical inventory taking Dispatching Safe custody Master file maintenance Maintain inventory…

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Inventory Transactions

Objectives Planned inventory levels and transactions are management’s general or specific authorizations. in accordance with (Occurrence) All inventories purchased and sold are accounted for. (completeness) Inventory transactions are accurately recorded as to account, amount and period. (Cut off, classifications, accuracy) Access to warehouse and inventory records is suitably controlled to prevent or detect on a timely basis…

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Purchases And Payables

Objectives The type of goods and services to be obtained, the manner in which they are obtained, the suppliers from which they are obtained, and the prices and terms on which they are obtained are in accordance with management’s general or specific authorizations.    (Occurrence) All goods and services received are accounted for. (Completeness) Amounts…

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Internal Control Questionnaire

CONTROL ENVIRONMENT Yes No N/A The functions of Board of Directors and its committees Are board of directors meetings held regularly? Are directors assigned specific responsibilities to verview various functions? Management philosophy and operating style Are internal control policies and procedures in writing? the policies and procedures communicated to all procedures exist for ensuring compliance…

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Documentation

The auditor should document the results of risk assessment either in the form of internal control questionnaire, flow charts or narrative descriptions. Techniques For Documentation Of Information Relating to Internal control structure For practical purposes there are three major techniques of documenting The accounting and internal control system. Narrative descriptions Internal Control Questionnaire ( I…

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