Week 5 - IT Controls

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What does PALACE stand for?

Password Authorisation Levels Access Control Enforcement

Which of the following are NOT e-Commerce controls: (Select all that apply)

Connecting to the internet could facilitate unauthorized access
The audit team should review the system's life cycle and the overall process (correct)
Customer information and inventory records should be regularly backed up
Sensitive data must be encrypted to prevent unauthorized access

Which of the following are considered "Business Continuity Controls"?

Having alternative processing, planning, documenting, and the testing facilities (correct)
Must have a list of files and data to be recovered (correct)
Must have virus protection installed and working (correct)
Must have various and regular backups (correct)
All of the above (correct)

What is the primary control activity for completeness of inventory transactions?

Recording all inventory that has been received Signup and view all the answers

The audit team should review the system's life cycle and the overall process during the implementation of software.

True (A) Signup and view all the answers

What does "SCRUM" stand for?

Segregation of Duty, Custody of Assets, Reconciliation, Unused Stationary, Management Supervision Signup and view all the answers

What is the main concern of the auditor when examining the occurrence of inventory transactions?

That all recorded inventory exists and there is no theft of goods Signup and view all the answers

What are the two primary concerns auditors have when examining the completeness of inventory transactions?

Recording all inventory that has been received and ensuring that all inventory is accounted for Signup and view all the answers

What is the purpose of the control "No movement of stock without authorisation and a document"?

This control helps prevent unauthorized movement or loss of inventory. Signup and view all the answers

Which of the following is NOT a risk related to the purchase cycle?

Late payment of invoices from the vendor (B) Signup and view all the answers

What is the purpose of performing a "re-performance" test during an audit?

To verify the accuracy of calculations and the accuracy of the work that the client has already done Signup and view all the answers

What is the primary concern of the auditor during the "matching" test?

To verify that all documents and transactions are linked together correctly Signup and view all the answers

Which of the following is NOT a risk related to the revenue cycle?

Failing to record purchases in the proper period (D) Signup and view all the answers

The validity of revenue transactions is tested by making sure all customers are properly identified and authenticated before sales are made.

True (A) Signup and view all the answers

How is the "completeness" of revenue transactions tested?

Checking if the company has recorded all sales and related receipts and transactions. Signup and view all the answers

The effectiveness of IT systems can be directly assessed by auditors through the use of CAATs.

True (A) Signup and view all the answers

List three primary areas of concern for auditors examining the "accuracy" of the revenue cycle?

<ol> <li>Checking if the prices and quantities on invoices are correct. 2. Making sure the calculation of sales, discounts, and commissions are accurate. 3. Ensuring the proper classification of revenue transactions.</li> </ol> Signup and view all the answers

What is the primary purpose of "cut-off" testing on the revenue cycle?

To verify that all revenues and expenses have been recorded in the correct accounting period, preventing revenue being recorded either too early or too late. Signup and view all the answers

What is the purpose of "classification" testing on the revenue cycle?

To ensure that all revenue transactions have been properly categorized and recorded in the appropriate accounts. Signup and view all the answers

What is the purpose of "completeness" testing of the revenue cycle?

To verify if the company has captured and recorded all of its revenue and that no sales have been missed. Signup and view all the answers

What is the purpose of the "Existence and Rights/Obligations" assertion for accounts receivable?

To confirm that the company actually owns the accounts receivable it has recorded and that it has a legal right to collect those receivables. Signup and view all the answers

What is the purpose of "Valuation" testing on accounts receivable?

To ensure that the allowance for uncollectible accounts is sufficient to cover potential losses from customers who may not be able to pay. Signup and view all the answers

How should an auditor test the "existence" and "rights/obligations" assertions of accounts receivable?

By sending confirmation letters to customers and reviewing the contracts and agreements in relation to accounts receivable. Signup and view all the answers

What is the purpose of performing "re-performance" testing on the purchases cycle?

To verify the accuracy of calculations done by the client when dealing with purchase orders and invoices. Signup and view all the answers

What is the primary purpose of "matching" testing in the purchases cycle?

To confirm a complete chain of documentation, ensuring every step in the purchase cycle from purchase requisition to receiving of goods is properly linked and documented. Signup and view all the answers

List three key areas where an auditor would focus to test the occurrence assertion of purchases?

<ol> <li>Verifying the existence of a purchase order, delivery note, and invoice to support a particular purchase. 2. Checking if the purchase occurred within the correct accounting period. 3. Evaluating if the purchase was recorded by the appropriate company.</li> </ol> Signup and view all the answers

What is the main purpose of "cut-off" testing for purchases?

To ensure that all purchases are recorded in the correct accounting period, preventing purchases from being recorded either too early or too late. Signup and view all the answers

What is the primary focus of the "completeness" assertion for purchases?

To confirm that all purchases made by the company have been recorded in the accounting system. Signup and view all the answers

What is the main purpose of "accuracy" testing in the purchases cycle?

To ensure that all purchases are recorded at the correct amount and with the right details. Signup and view all the answers

What is the purpose of "cut-off" testing for payments?

To ensure that all payments made by the company are recorded in the correct accounting period, preventing payments from being recorded either too early or too late. Signup and view all the answers

What is the purpose of "completeness" testing in the payments cycle?

To verify that all payments made by the company have been accounted for and that no payments have been missed. Signup and view all the answers

What is the purpose of "accuracy" testing for payments?

To confirm that all payments made by the company have been recorded at the correct amount and with the correct details. Signup and view all the answers

What is the main concern when auditors examine the "classification" of purchases?

They are verifying that all purchases have been allocated to the correct expense accounts. Signup and view all the answers

What is the primary responsibility of an auditor during an inventory count?

To verify that all inventory recorded in the company's records is physically present and accounted for. Signup and view all the answers

Besides physically inspecting the inventory, what are three other key activities an auditor should perform during an inventory count?

<ol> <li>Obtain copies of the inventory count sheets. 2. Trace the inventory count sheets back to the physical inventory. 3. Inquire about the inventory held by third parties and possibly visit those locations.</li> </ol> Signup and view all the answers

What is the main purpose of "rights and obligations" testing for inventory?

To ensure that the company owns the inventory it possesses and that other parties' inventory is not included. Signup and view all the answers

What is the purpose of "completeness" testing for inventory?

To verify that all inventory belonging to the company has been recorded and that no inventory has been omitted from the records. Signup and view all the answers

What is the purpose of "valuation" testing in the inventory cycle?

To ensure that the value of inventory is properly determined and reflected in the company's financial statements. Signup and view all the answers

How does an auditor test the accuracy of an inventory valuation?

Through reviewing details such as purchase invoices, reviewing calculations, and comparing the inventory valuation to the lower of cost or net realizable value. Signup and view all the answers

How does an auditor test the "classification" assertion of inventory?

By verifying that all inventory items have been assigned to the correct categories based on their nature, such as raw materials, work in progress, or finished goods. Signup and view all the answers

What is a key control to be in place to prevent unauthorized movement of inventory?

A system that requires authorization and documentation for any movement of inventory. Signup and view all the answers

Why are strong internal controls crucial for ensuring the accuracy of inventory records?

It is important to prevent errors, fraud, and theft of inventory and ensure that it is accurately valued for financial reporting. Signup and view all the answers

What is the primary concern when auditors examine the "completeness" of inventory transactions?

Ensuring that all the inventory that has been received has been properly recorded in the accounting system. Signup and view all the answers

Besides physical inspection of inventory, what are three key aspects of testing the accuracy of inventory transactions?

<ol> <li>Verifying that the costs associated with purchases and other inventory adjustments are accurately recorded. 2. Evaluating the accuracy of any inventory adjustments. 3. Ensuring the valuation of inventory items is accurate, using methods such as net realizable value calculations.</li> </ol> Signup and view all the answers

Flashcards

IT System Maintenance Controls

Controls used to prevent unauthorized changes to programs, data, terminals, and files, and to correct errors or changes in user requirements, ensuring data integrity after system changes.

Program Change Standards

Formal rules and procedures for modifying computer programs.