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Tutorial 6 - Internal Control 2021

This document contains tutorial questions for an auditing course. Question 1 describes the cash receipts process for a window cleaning company and asks to identify deficiencies and controls. Question 2 asks to identify internal control components for various controls. Question 3 asks to distinguish between general and application controls. Question 4 distinguishes between automated and manual application controls. Question 5 describes controls in a payroll cycle and asks to identify if they are automated or manual, and which assertions they affect.

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Priscella Llewellyn
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48 views2 pages

Tutorial 6 - Internal Control 2021

This document contains tutorial questions for an auditing course. Question 1 describes the cash receipts process for a window cleaning company and asks to identify deficiencies and controls. Question 2 asks to identify internal control components for various controls. Question 3 asks to distinguish between general and application controls. Question 4 distinguishes between automated and manual application controls. Question 5 describes controls in a payroll cycle and asks to identify if they are automated or manual, and which assertions they affect.

Uploaded by

Priscella Llewellyn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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University of the West Indies, Mona

Department of Management Studies


ACCT 3043 – Auditing I

TUTORIAL QUESTIONS 6

1. Mirror Mirror Windows (MMW) is a window cleaning company. Customers’ windows


are cleaned monthly, the window cleaner then puts a self-addressed envelope for payment
under the customer’s front door.
MMW has a large number of receivable balances and these customers pay by cheque or
cash, which is received in the self-addressed envelopes through the post office. The
following procedures are applied to the cash received cycle:
a) A junior clerk from the accounts department opens the mail and if any cheques or
cash have been sent, she records the receipts in the cash received log book and then
places all the monies into the locked small cash box.
b) The contents of the cash box are counted each day and every few days these sums
are lodged by whichever member of the finance team is available.
c) The cashier records the details of the cash received log book into the cash receipts
day book (i.e. cash book) and also updates the sales ledger.
d) Usually on a monthly basis the cashier performs a bank reconciliation, which he
then files, if he misses a month then he catches this up in the following month’s
reconciliation.
Required:
(i) Identify and explain THREE deficiencies in the system above. (6 marks)
(ii) Suggest controls to address each of the deficiencies identified above. (3 marks)

2. For each control listed below, identify the internal control component to which it relates:
(5 marks)
i. A copy of the code of conduct is communicated and made publicly available to
suppliers, customers, investors, creditors, insurers, competitors, and auditors.
ii. Periodic comparison of amounts recorded by the accounting system with physical
assets.
iii. Annual Strategy Meeting are held to identify the objectives that are important
(critical success factors) to achievement of entity-wide objectives relevant to
financial accounting and reporting.
iv. Oversight by the Audit Committee of the design of the Ethics Hotline &
Whistleblower Program.
v. Sales orders over a set threshold require approval by management before acceptance
by the system. The lack of approval creates a suspense file that is reviewed by
management for clearance on a regular basis.

1
3. Distinguish between general control and application control. (4 marks)
4. Distinguish between automated application controls and manual application controls. (2
marks)
5. The following are 5 key controls in the payroll cycle for Hilman Stores Ltd:
i. To input hours worked, payroll accounting personnel input the employees Tax
Registration Number (TRN). The system does not allow input of hours worked
for invalid numbers.
ii. The system automatically computes pay at time and a half once hours worked
exceed 80 in a 2 week pay period.
iii. The system generates a listing by employee names of cheques processed.
Department heads review these listing to ensure that each employee actually
worked during the pay period.
iv. The system automatically rejects processing an employee’s pay if inputted hours
exceed 160 hours for a 2week pay period.
v. The payroll application is programmed so that only human resource personnel are
able to add employee’s names to the employee master files.
Required –
For each control:
a) Identify whether the control is an automated or a manual application control. (5 Marks)
b) Identify the transaction related assertion that is affected by the control. (5 Marks)

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