Control objectives, control procedures, activities and tests of control

The sales system

Assertions Control objectives Controls Tests of controls

Occurrence and To ensure that recorded sales The tasks of taking orders, recording sales Observe the processing of orders through
existence transactions represent goods or and receiving payment are allocated to the sales cycle and inspect sign-offs to
services provided. three different staff members. evaluate whether proper segregation of
duties is operating.
Sales are only recorded if there is an For a sample of sales invoices, ensure there
approved sales order form and is a related sales order form that has been
 shipping/despatch documentation. authorised and shipping documentation.
Monthly customer statements sent out and Review entity's procedures for sending out
customer queries and complaints handled monthly statements and dealing with
independently. customer queries and complaints.
To ensure that goods and Authorisation of credit terms to customers Review entity's procedures for granting
services are only supplied to (senior staff authorisation, references/credit credit to customers.
customers with good credit checks for new customers, regular review
ratings. of credit limits).
Authorisation by senior staff required for Examine a sample of sales orders for
changes in other customer data such as evidence of proper credit approval by the
address etc. appropriate senior staff member.
Orders not accepted unless credit limits Review all new customer files to ensure
reviewed first. satisfactory credit references have been
obtained.
To ensure that goods and Authorised price lists and specified terms Verify that price lists and terms of trade are
services are provided at of trade in place. properly documented, authorised and
authorised prices and on communicated.
authorised terms.
Completeness To ensure that all revenue Accounting for numerical sequences of Review and test entity's procedures for
relating to goods despatched is invoices. accounting for numerical sequences of
recorded. invoices, and inspect invoices to confirm
whether they are sequentially numbered.
To ensure that all goods and Shipping/despatch documentation is For a sample of shipping/despatch
services sold are correctly matched to sales invoices. documents, ensure each has been matched
invoiced. to a related sales invoice that was
subsequently recorded.
Sales invoices are reconciled to the daily Review a sample of reconciliations
sales report. performed. Reperform a sample of
reconciliations.
An open-order file is maintained and Inspect the open-order file for unfilled
reviewed regularly. orders.
Accuracy To ensure that all sales and Sales invoices and matching documents Review supporting documents for a sample
adjustments are correctly required for all entries and the date and of sales entries to ensure they contain the
journalised, summarised and reference of the entry are written on each written details that indicate they were
posted to the correct accounts. document. referred to when entered.
Cut-off To ensure that transactions have All shipping documentation is forwarded to Compare dates on sales invoices with dates
 been recorded in the correct the invoicing section on a daily basis. of corresponding shipping documentation.
period.
Classification To ensure that all transactions Chart of accounts (COA) in place and is Inspect any documentary evidence of
are properly classified in regularly reviewed for appropriateness and review (such as emails requesting update to
accounts. updated where necessary. COA as a result of review).

The purchases system

Assertions Control objectives Controls Tests of controls

Occurrence and To ensure that recorded Authorisation procedures and policies in Inspect policies and procedures and enquire
existence purchases represent goods place for ordering goods and services. about them.
 and services received. The responsibility for placing the orders, Observe the processing of purchase orders
recording the purchase order and making throughout the purchasing cycle and
the payment is carried out by at least three evaluate whether proper segregation of
different staff members. duties is operating.
Purchase orders raised for each purchase Examine a sample of purchase orders to
and authorised by appropriate senior ensure they have been appropriately
personnel. authorised.
Approved purchase order for each receipt For a sample of goods received notes
of goods. (GRNs), ensure there is a related purchase
order that has been properly approved.
Staff receiving goods check them to the Observe receipt of goods by staff to
purchase order. confirm whether the check is done.
Stores clerks sign for goods received. Inspect a sample to confirm whether stores
staff undertake this check.
Purchase orders and GRNs are matched Examine supporting documentation to
with the suppliers' invoices ensure it has been matched for a sample of
invoices.
Completeness To ensure that all purchase Purchase orders and GRNs are matched For a sample of purchase orders in the year
transactions that occurred with the suppliers' invoices. ensure each has been matched to a related
have been recorded. invoice that was subsequently recorded.
Supplier statements independently Review procedures for reconciling supplier
reviewed and reconciled to trade payable statements and reperform a sample of
records. reconciliations.
Rights and To ensure that recorded Purchase orders and GRNs are matched Examine supporting documentation to
obligations purchases represent the with the suppliers' invoices. ensure it has been matched for a sample of
liabilities of the entity. invoices.
Accuracy, valuation To ensure that purchase Mathematical accuracy of the supplier's Review a sample of invoices for evidence
and allocation and transactions are correctly invoice is verified. the accuracy has been verified (eg signature
classification recorded in the accounting or initials) and reperform the check.
system. Amount posted to general ledger is Review reconciliations for evidence of this
reconciled to the purchases ledger. check.
Cut-off To ensure that purchase All goods received reports forwarded to Compare dates on reports to dates on
transactions are recorded in accounts payable department daily. relevant vouchers.
the correct accounting Procedures in place that require recording Compare dates on vouchers with dates they
period. of purchases as soon as possible after were recorded in the purchases journal.
goods/services received.
 The payroll system
Assertions Control objectives Controls Tests of controls
Occurrence and To ensure that payment is Segregation of duties between HR and Review payroll and HR job descriptions and
existence made only to bona fide payroll functions. company policies on payroll process, to
employees of the entity. evaluate whether proper segregation of
duties is in place.
Authorisation procedures for hiring, Review and test authorisation procedures in
terminating, time worked, wage rates, place.
overtime, benefits etc.
Use of time clocks to record time worked. Observe employees' use of time clocks.
Clock cards approved by supervisor. Inspect a sample of clock cards for evidence
of approval by appropriate level of
management.
Employee numbers assigned to each Review and test procedures for entering and
employee in the payroll master file. Only removing employee numbers from the
employees with valid employee numbers payroll master file.
are paid
Payroll budgets in place and reviewed by Review budgeting procedures.
management.
Completeness To ensure that all payroll Regular reconciliations carried out of Review a sample of reconciliations to
costs are recorded for work payroll records and employee costs ensure they are properly carried out.
done by employees. recorded in the general ledger. Reperform a sample of reconciliations.
Comparison of cheques and bank transfer Enquire whether comparisons are being
list with payroll to ensure all employees made between payment records and payroll
paid have been recorded via payroll. and inspect any documentary evidence of
the review.
Accuracy, valuation To ensure that all benefits Reperformance of a sample of payroll Review documentary evidence that
and allocation and and deductions (tax, pension benefit and deduction calculations. recalculation occurred (eg spreadsheet
classification etc) are computed correctly. printout).
Agreement of gross earnings and total tax Inspect documentation for evidence of
deducted with taxation returns. management's review.
To ensure that payroll Payroll master file reconciled to general Review reconciliation o payroll master file
transactions are correctly ledger. to general ledger. Confirm whether
recorded in the accounting discrepancies are followed up promptly and
 system. resolved.
Cut-off To ensure that payroll All starters, leavers, changes to salaries and Review entity's procedures for reporting
transactions are recorded in deductions are reported promptly to payroll changes to the payroll department. Verify
the correct accounting department and changes are updated in the sample of starters and leavers.
period. payroll master file promptly.
Presentation To ensure that payroll Independent approval and review of Review procedures for classifying payroll
transactions are properly accounts charged to payroll. costs.
classified in the financial
statements.

The inventory system

Assertions Control objectives Controls Tests of controls
Occurrence and To ensure that all inventory Pre-numbered documentation such as GDNs Review documentation in use.
existence movements are authorised and GRNs in use.
and recorded. Reconciliations of inventory records with Review a sample of reconciliations to
general ledger. confirm they are performed and then
reviewed by an independent person
Separate responsibilities for maintenance of Observe the recording of inventory and
records and custodianship. discuss inventory procedures with relevant
staff to ensure that proper segregation of
duties is operating.
To ensure that inventory Physical safeguards in place to ensure Review security systems in place (eg locked
included on the statement of inventory is not stolen. warehouses, CCTV).
financial position physically Separate responsibilities for maintenance of Review policies and procedures in place;
exists. records and custodianship. discuss procedures with relevant staff.
Inventory counted regularly. Attend inventory count.
Completeness To ensure that all purchases Reconciliations of accounting records with Review reconciliations performed and
and sales of inventory have physical inventory. inspect them for evidence of review.
been recorded in the Reperform a sample of reconciliations.
accounting system.
Rights and To ensure that inventory Procedures in place to include inventory Review entity's procedures relating to
obligations records only include items held at third parties and exclude inventory consignment inventory.
that belong to the entity. held on consignment for third parties.
Accuracy, valuation To ensure that inventory Periodic or annual comparison of inventory Review and test entity's procedures for
and allocation and quantities have been with amounts shown in continuous taking physical inventory.
classification accurately determined. (perpetual) inventory records.
To ensure that inventory is Inventory managers review inventory Discuss with inventory managers how this
properly stated at the lower regularly to identify slow-moving, obsolete is done.
of cost and net realisable and excess inventory.
value.
Cut-off To ensure that all purchases All despatch documents processed daily to Inspect documentation to confirm daily
and sales of inventory are record the despatch of finished goods. processing.
recorded in the correct
accounting period.
Presentation To ensure that inventory Orders for materials and production data Review entity's procedures and
transactions and balances are forms used to process goods through documentation used to classify inventory.
properly identified and manufacturing.
classified in the financial
statements.

The cash system

Cash payment
Assertions Control objectives Controls Tests of controls
Occurrence To ensure that only valid Separate responsibilities for the recording, Observe the processing of cash and review
cash payments are made. payment and reconciliation of cash. the entity's policies to evaluate whether
proper segregation of duties is operating.
Only authorised staff can make electronic Review delegated list of authority for cash
cash payments and issue cheques. payments.
Completeness To ensure that all cash Review of cash payments by manager Inspect sample of listings for evidence of
payments that occurred are before release. senior review.
recorded. Supplier statements independently reviewed Review procedures for reconciling supplier
and reconciled to trade payable records. statements.
Use of pre-numbered cheques. Examine evidence of use of prenumbered
cheques.
Accuracy, valuation To ensure that cash payments Reconciliation of daily payments report to Review reconciliation, to ensure performed,
and allocation and are recorded correctly in the electronic cash payment transfers and reviewed and any discrepancies followed up
classification ledger. cheques issued. on a timely basis.
Monthly bank reconciliations of bank Review bank reconciliation for evidence it
statements to ledger account. was done and independently reviewed.
 Reperform a sample of bank reconciliations.
To ensure that cash payments Supplier statements reconciled to payable Review reconciliations for a sample of
are posted to the correct accounts regularly. accounts.
payable accounts and to the
general ledger.
Cut-off To ensure that cash payments Reconciliation of electronic funds transfers Review reconciliation and check it is carried
are recorded in the correct and cheques issued with postings to cash out regularly.
accounting period. payments journal and payable accounts.
Presentation To ensure that cash payments Independent approval and review of general Review assignment of general ledger
are charged to the correct ledger account assignment. account.
accounts.

Cash receipts
Assertions Control objectives Controls Tests of controls
Occurrence To ensure that all valid cash Separate responsibilities for the recording, Observe the processing of cash and review
receipts are received and receipt and reconciliation of cash. the entity's policies to evaluate whether
deposited. proper segregation of duties is operating.
Use of cash registers or point-of-sale Observe cash sales procedures.
devices.
Periodic inspections of cash sales Enquire of managers about results of
procedures. inspections.
Independent check of agreement of bank Review documentation for evidence of
deposit slip with daily cash summary. independent check.
Completeness To ensure that all cash Daily cash receipts listing reconciled with Review reconciliation.
receipts are recorded. posting to customer accounts.
Customer statements prepared and sent out Examine a sample of customers and note
on a regular basis. frequency of statements.
Accuracy, valuation To ensure that cash receipts Monthly bank statement performed and Review reconciliations for evidence they
and allocation and are recorded at correct reviewed independently. were performed and independently
classification amounts. reviewed.
To ensure that cash receipts Monthly customer statements sent out. Review entity's procedures for sending out
are posted to correct statements.
receivables accounts and to Monthly cash receipts journal agreed to Review journal and posting to general
the general ledger. general ledger posting. ledger.
Cut-off To ensure that cash receipts Bank reconciliation at period end. Review and test reconciliation.
 are recorded in the correct
accounting period.
Presentation To ensure that cash receipts Chart of accounts (COA) in place and is Inspect any documentary evidence of
are charged to the correct regularly reviewed for appropriateness and review (such as emails requesting update to
accounts. updated where necessary. COA as a result of review).

Non-current assets.
Assertions Control objectives Controls Tests of controls
Authorisation To ensure that expenditure is Orders for capital items should be authorised Review policies and procedures in place.
properly authorised. by appropriate levels of management.
Orders should be requisitioned on Examine a sample of orders for appropriate
appropriate (different to revenue) authorisation.
documentation.
Classification To ensure that expenditure is Expenditure should be reviewed before Inspect policies and procedures and enquire
classified correctly in the recording as capital or revenue expenditure. about them.
financial statements as
capital or revenue
expenditure.
Completeness To ensure that all non-current The non-current asset register should be Review reconciliation to ensure it is
assets are correctly recorded reconciled regularly to the general ledger regularly carried out, reviewed by a more
in the accounting system. and any differences investigated and senior person, and that all discrepancies are
resolved promptly. followed up and resolved on a timely basis.