Question

list three tests of internal controls for each of the following: Revenue and cash receipts. Why do you think these controls are important?

Answer 1

Three tests of internal controls for Revenue;

1. Occurrence;

This test is done for knowing whether transaction actually occurred or not.

2. Completeness;

This test is done for knowing whether all relevant transactons have been recorded or not.

3. Cutoff;

This test is done for knowing whether relevant actual transactions are recorded in correct accounting period or not.

Three tests of internal controls for Cash;

1. Presentation and disclosure;

This test is done for knowing whether all relevant acsh receipts are proeprly presented and disclosed in the financial statements.

2. Existence and occurrence;

This test is done for knowing whether all relevant cash receipts are actually occurred and exists in the books or not.

3. Valuation or Allocation;

This test is done for knowing actual valuation and allocation of cash receipts.

Why do you think these controls are important?

These controls are very important because of the following reasons;

1. These controls helps in making sure about the accuracy of financial statements.

2. Faults in controls will negatively affect audit work hence controls are very important.

3. Deficiencies in testing and internal control can lead to inadequate testing of accounts.

4. Controls helps in determining that whether the organization has taken timely corrective action on weaknesses or not.