CONTROL CONTROL TEST OF CONTROL

DEFICIENCY RECOMMENDATIO
N
Segregation of Duties
Lily Shah, the finance clerk, posts There should be separate The file of bank reconciliation must
the bank transfer receipts from the individuals in charge of all the be reviewed to identify the person
bank statements to the cash book mentioned responsibilities. If that is who performed the bank
and also updates the sales ledger. not practical, then at least the bank reconciliation.
She is also in charge of performing reconciliation must be performed
the bank reconciliation. Thus, there by a separate, independent member The log of IDs must be reviewed to
is a lack of segregation of duties of the finance team. identify the individuals who
There is a risk that errors won’t be updated the cash ledgers ad
identified and corrected on a timely transferred entries from bank
basis. There is also an increased risk statements to the cash book.
of fraud.
A discussion should be held with
the financial controller about which
members are responsible for
processing bank receipts and
updating the cash ledger.
Order Numbers
Customer orders are given a Sales orders should all be Re-perform the control by
number based on the sequentially numbered so undertaking a sequence
personal identification any missing orders can be check of sales order. Discuss
number of the sale staff. So, identified, and a proper any gaps with the sales
the order numbers don’t record can be kept. A regular ordering staff
follow a sequence which sequential check should be
means that orders are not undertaken
sequentially numbered. This
gives rise to the risk of
missing orders and lack of
timely orders.

If orders are not delivered on

time, it might lead to a loss in
customer goodwill
Credit Limit
The sales credit limit is being The credit limit should be set For a sample of new
set by the sales ledger clerk. by a senior member of the customers this year, review
He is not a senior enough sales department and not by the authorized credit limit
member to undertake this the sales ledger clerk. These and verify if this was set by a
responsibility should be regularly reviewed responsible official
Credit limits might be set too by the financial controller
high which could result in a Enquire of sales ledger clerk
rise of irrecoverable debts or about who can set sales
too low which could result in credit limits
loss of sales
Out of Date Standard Costs
Inventory is being held at A review of all standard costs Obtain a copy of all the
standard cost which were currently in use should be standard costs used for
last reviewed 18 months ago. undertaken by a senior inventory valuation and
There is chance of manager in the production assess when the last review
misstatement in the department. was undertaken. Inspect for
valuation since wages Actual costs of labor, evidence of being reviewed
inflation and changes in the overheads and raw materials by the production director.
price of raw materials have should be ascertained and
not been accounted for. compared to the proposed
IAS 2 Inventories only allows standard costs to ensure that
inventory to be held at they are a close
standard cost if they are a approximation.
close approximation to the
actual cost which is unlikely The revised standard costs
if standard costs remain should be reviewed by a
unchanged for a long period production director who
of time. should evidence this review.
At least annually, all standard
costs should be reviewed to
ensure that they stay up to
date.
Input of Invoices

Maria, the purchase ledger Maria should instead input The audit team should use
clerk, utilizes only document invoices in batches and make test data controls to assess
controls for inputting use of not just document whether data can be input
invoices controls but information without batches control data
processing tools such as and whether sequence
These only confirm the controls total to ensure both checks are built into the
completeness of the input the completeness and system.
and not the accuracy or the accuracy of input invoices.
validity. Sequential systems should Observe the input of
Thus, invoices can be also be built to ensure the purchase invoices and
incorrectly input which may completeness of the input identify what information
lead to delay in payments processing tools are utilized
and incorrect amounts being by the clerk.
paid. This could result in
overpayment or loss of
supplier goodwill who may
withdraw credit facilities.
Overtime is not authorised All overtime should be Review the overtime report
prior to being paid. The authorised by a responsible for evidence of authorization
information per employee is official prior to the payment and note the date this
collated and submitted to being processed by the occurred to ensure that this
payroll by production clerk payroll department. This was undertaken prior to the
but not authorised. The authorization should be payment of the overtime
production director is only evidenced in writing.
informed about overtime
levels via quarterly reports.
These reports are reviewed
sometime after the payments
have been made, which could
result in unauthorised
overtime or amounts being
paid incorrectly and payroll
cost increasing.
Bank Transfer Authorisation
The finance director, when Obtain a sample of the
The finance director authorizing payments, should payment lists and review for
compares total of the bank on a sample basis perform signature by the finance
transfers with total to be paid checks from the human director as evidence that the
as per the payroll records. resources department’s staff control is operating
There could be employees records to payment lists and effectively.
omitted or fictitious vice versa to confirm that
employees added to the payments are complete and
payment listing so that made only to bona fide
although the total payment employees.
list agrees to payroll totals,
they could be fraudulent The finance director should
payments being made. sign the payment list as
evidence that these checks
have been undertaken.

A) Accrual for employment tax payable

- Compare the employment tax payable accrual to the previous year, investigate any
significant differences
- Agree the employment tax payable accrual to the payroll records to confirm accuracy
- Reperform calculations of accruals on a sample of employees to confirm accuracy
- Review any disclosures made in respect to employment tax accrual and whether they are in
compliance with the relevant accounting standards and regulations