ACC311 Fundamentals of Auditing Assigments N.02 Spring Solution Ideas 2014

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ACC311 Fundamentals of Auditing Assigments N.02 Spring Solution Ideas 2014
Last Date Is 23RD JULY, 2014


ACC311 Fundamentals of Auditing Assigments N.02 Spring Solution Ideas 2014


Read carefully the following paragraph and give answer accordingly.

Ali is an auditor having satisfactory quality control review (QCR) rating issued by ICAP.
He has been appointed as an auditor of Model Manufacturing Limited. He has started his
audit work, understanding the entity’s internal control environment and obtains various
assertions from different executives and employees of the entity. After going through a
preliminary assessment of the entity’s environment, Ali feels that there is a problem in
the working of internal control system in handling the sales & debtors and payroll
departments. Now, he is planning to check the internal control system of sales and payroll
departments of the entity.
Describe various appropriate internal control procedures and tests of control, Ali may
apply to determine the strength of internal control measures over the client’s:
(i) Sales & debtors (2.5 + 2.5 Marks)
(ii) Payroll system (2.5 + 2.5 Marks)

IMPORTANT:
24 hours extra / grace period after the due date is usually available to overcome
uploading difficulties. This extra time should only be used to meet the emergencies and
above mentioned due dates should always be treated as final to avoid any inconvenience.



Internal Controls
Internal control is all of the policies and procedures management uses to achieve the following goals.

Safeguard University assets - well designed internal controls protect assets from accidental loss or loss from fraud.
Ensure the reliability and integrity of financial information - Internal controls ensure that management has accurate, timely and complete information, including accounting records, in order to plan, monitor and report business operations.
Ensure compliance - Internal controls help to ensure the University is in compliance with the many federal, state and local laws and regulations affecting the operations of our business.
Promote efficient and effective operations - Internal controls provide an environment in which managers and staff can maximize the efficiency and effectiveness of their operations.
Accomplishment of goals and objectives - Internal controls system provide a mechanism for management to monitor the achievement of operational goals and objectives.

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Testing Controls in an Audit of Financial Statements


Controls to be Tested. If the auditor plans to assess control risk at less than the maximum by relying on controls,12/ and the nature, timing, and extent of planned substantive procedures are based on that lower assessment, the auditor must obtain evidence that the controls selected for testing are designed effectively and operated effectively during the entire period of reliance.13/ However, the auditor is not required to assess control risk at less than the maximum for all relevant assertions and, for a variety of reasons, the auditor may choose not to do so.

Also, tests of controls must be performed in the audit of financial statements for each relevant assertion for which substantive procedures alone cannot provide sufficient appropriate audit evidence and when necessary to support the auditor's reliance on the accuracy and completeness of financial information used in performing other audit procedures.14/