Internal Control Exercises
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ScribdTranslationsUNIVERSITY OF PALERMO
INTERIM AUDIT
INTERNAL CONTROL
EXERCISE N° 1
Identify the control weaknesses for the cases mentioned below.
internal. Indicate succinctly for each case: type of failure (control deficiency
internal) problems what may provoke recommendations y
action/procedures to apply.
PURCHASES
1. There are no critical inventory points (reorder point)
2. Quotations are not requested from multiple suppliers for the purchase of materials.
cousins.
3. Purchase orders are not authorized by the responsible official.
4. The prices included in the approved purchase order are not compared with the
from the supplier's invoice.
5. The reception reports are not prenumbered.
Payments
1. Checks are signed without supporting documentation.
2. Blank signed checks are kept on hand to address
eventual disbursements.
3. The company does not pay its suppliers on time and loses the opportunity
to take advantage of early payment discounts.
4. Cash counts are not performed.
5. The cashier prepares the bank reconciliations.
6. Bank reconciliations are not controlled by an official.
responsible.
7. Bank reconciliations are carried out by an accounting employee.
that only contains the purchase book.
UNIVERSITY OF PALERMO
INTERIM AUDIT
SALES
1. The order notes are not pre-numbered.
2. The salespeople approve the credit limits of the customers in a way
after the order entry.
3. Credit notes for returns (cancelling previous sales)
they increase considerably during the first month of the exercise (in
relationship with the annual average.
4. The account summaries received are not analyzed.
INCOME
Collection receipts are not pre-numbered.
2. The receipts are prenumbered. The (blank) books are kept under custody.
by the management office.
3. The Company invested the excess cash available for the month in Fixed Terms.
If invested in Treasury Bills, one would have obtained an income.
mayor.
4. No restrictive endorsement of the received securities is made.
Asset safeguarding. Analysis of subsequent accreditations
PRODUCTION
1. Access to warehouses is free for all company personnel.
2. Physical inventories are carried out by the person in charge of the warehouse.
3. Obsolescence analysis of the inventory is not conducted.
4. Inventory is not taken at the end of the fiscal year (the cost is determined by
inventory deficiency
5. Rotating inventories are conducted for all goods for resale.
6. Rotating inventories are carried out. There is no certainty that all
inventories should be counted at least once a year.
UNIVERSITY OF PALERMO
INTERIM AUDIT
7. Despite having rotating inventories, it is carried out for valuable products.
significant end-of-year inventory.
VARIOUS
1. The journal entries are not authorized by a responsible official.
2. The accountant depends on the Treasurer whose main function is to manage the
income and expenses of funds.
University of Palermo
INTERIM AUDIT
EXERCISE NO. 2
Analyze the facts mentioned below, which are independent.
among themselves, indicating for each case: (a) whether there are deficiencies in internal control
(b) what type of internal control is affected (c) what are the problems that
They can remain hidden (undetected) due to a lack of control.
(1) The receipt notice and the purchase order are filed based on the
numerical sequence when the merchandise arrives. Upon receipt of the invoices from
suppliers are registered immediately with a debit to the
account "invoices to be received" and filed by due date until
the payment is arranged.
(2) The delivery notes of the company, issued by the shipping manager, are
sent to checking accounts awaiting the delivery note confirmed by the
client.
When this is received, the file is sent to billing where the process continues.
to the valuation of the delivery note and to the issuance of the corresponding invoices
for all the approved delivery notes.
Procedures: Cutoff of documentation at closing and testing of it
(number sequence control)
UNIVERSITY OF PALERMO
INTERIM AUDIT
University of Palermo–Intermediate Audit
Internal Control Exercise
1. The person in charge of the 'Warehouse' when receiving the goods proceeds to verify the
supplier's delivery note with the goods received, then prepares the
corresponding Receipt Report based on the goods received (all the
Receipt reports are prenumbered) in original and duplicate. The
original is permanently archived in the Reception Reports file that it has
in the Deposit while the duplicate is sent to the 'Accounts Payable' department
where the credit is recorded in the supplier's current account valuing the IR with the
corresponding purchase order (until the receipt of the supplier's invoice).
The main sales activity of the Company is carried out within the country with
salespeople who travel through the various towns in the interior. Additionally, each
The salesperson conducts collection management for the clients they visit and based on their
credit risk analysis preliminarily authorizes the credit to be granted to the client.
Every two weeks, the sellers proceed to send their credit risk analysis.
preliminaries to the 'Accounts Receivable' sector where credit is controlled, on a test basis,
granted in a timely manner by the seller.
All vendors have a receipt book (each receipt is located
subscribed) duly identified by the 'Treasury' sector where it is recorded
numerical sequence of the receipts delivered to the sellers.
Weekly, each salesperson sends the collections by email to the 'Treasury' department.
along with a detailed spreadsheet that contains only the following information: date,
client name and amount charged. Then the "Treasury" department sends a copy of the
sheet for the 'Accounts Receivable' sector where current accounts of the
clients with the information contained in them.
You are requested to identify:
a) If there are deficiencies in internal control, briefly explain them.
b) What type and form of internal control would be affected for each of the
deficiencies.
c) The effect that such deficiencies could have on the financial statements of the
society.
d) Explain how you would modify your substantive testing work program.
to correspond.