Accounting Q&A · Auditing · Topic 4
Practise control design, segregation of duties and internal audit. Try each answer before revealing it.
Worked example
One employee creates suppliers and approves payments. Inspect access rights and a sample of changes. Separate roles and review supplier changes.
Core concepts
1. What should you know about internal control?
Processes designed to provide reasonable assurance over objectives such as reporting, operations and compliance.
2. What should you know about internal check?
Dividing routine work so one person’s actions can be checked by another.
3. What should you know about internal audit?
A function providing independent, objective assurance and advice.
4. What should you know about preventive control?
A control designed to stop errors or unauthorised actions before they occur.
5. What should you know about detective control?
A control designed to identify problems after they occur.
6. What should you know about segregation of duties?
Separate authorisation, custody and recording where practical.
7. What should you know about walkthrough?
Follow a transaction through the system to understand the process and controls.
8. What should you know about control design?
Whether the control, if operated properly, can address the risk.
9. What should you know about operating effectiveness?
Whether the control works consistently as designed.
10. What should you know about compensating control?
An alternative control that reduces risk when the preferred control is impractical.
Case 1
One employee creates suppliers and approves payments.
11. Which audit concept is central here?
Segregation of duties.
12. What is the main objective?
Prevent unauthorised suppliers and payments.
13. What evidence or procedure would you use?
Inspect access rights and a sample of changes.
14. What limitation should you consider?
A written policy cannot substitute for independent approval.
15. What should happen next?
Separate roles and review supplier changes.
Case 2
A bank reconciliation was prepared every month but never reviewed.
16. Which audit concept is central here?
Detective control review.
17. What is the main objective?
Identify whether reconciling items are independently checked.
18. What evidence or procedure would you use?
Inspect reviewer evidence and investigate stale items.
19. What limitation should you consider?
Preparation alone does not demonstrate review.
20. What should happen next?
Assign a reviewer and require follow-up on exceptions.
Case 3
A small shop has only two staff handling cash.
21. Which audit concept is central here?
Compensating controls.
22. What is the main objective?
Reduce the risk of concealed shortages.
23. What evidence or procedure would you use?
Compare register totals, deposits and bank credits.
24. What limitation should you consider?
Limited staffing restricts formal segregation.
25. What should happen next?
Have the owner review reconciliations and unusual refunds independently.
Professional standards reference. For statutory duties, confirm the rules in the relevant jurisdiction.