Question

Illustrate your understanding of internal controls by providing an example of a control you have personally witnessed (at the gym, supermarket, a restaurant etc.) – do not use a traditional business setting, such as those detailed in your textbook. In your example make sure you cover the following:

a. Describe the control in detail (including the setting).

b. What was the control trying to achieve (ie. prevent/safeguard)?

c. What specific general ledger account could the control be linked to?

d. What assertion could the control have been addressing (ie. safeguarding)?

e. How could an auditor test the control?

Answer 1

Let's take an example of a Service Company Named X ltd.

Now The Control we will be taking for consideration falls under the process : Treasury and sub process : Bank Payments .

Let the control be that for all bank payments below $10000 , signatures or approvals of two authorised signatories are required and for payments of $10000 and above signatures or approvals of three or more authorised signatories will be required.

The signature or approval can be witnessed on payment slip or cheque or via email approval .

The General Ledger effected through this control will be Bank and Other Balances

The Objective of this control is that there are no unauthorised bank payments leading to fraud or bank accounts being operated by unauthorised personel .

The Assertions being effected by this control are Existence , Occurence , Valuation and Allocation of Bank Balances.

In order to test this control an auditor will obtain the day book from the company and check all the payment transactions and ensure that all the payments above $10000 have the approval or signature of atleast 3 signatories and all the payments below $10000 have the signature or approval of 2 signatories .

If there are too many payment transactions auditor may have to follow a sampling technique or consider the higher value transactions first.