Kalina Sukarova, Senior Financial Management Specialist

Transcription

1 Kalina Sukarova, Senior Financial Management Specialist 16 March 2017 Audit Training of Trainers Road to Europe: Program of Accounting Reform and Institutional Strengthening EU-REPARIS is funded by the European Union and is a part of WB EDIF.

2 »Discuss control testing in a small client context»communications on internal control deficiencies»provide control examples in the revenue and expenditure business cycle»engage in group activity with the simulated client PejaSko 2

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4 »The owner is also the manager and he is taking everything under his own control»controls may not be as well defined or as plenty and are often informal»there is wider responsibility of management for areas of the business and segregation of duties can be an issue»many of the key controls are performed by the owner / manager and depend on his physical presence»inherent possibility for management override of internal controls 4

5 »Presence of cash transactions without appropriate segregation of duties»more related party transactions and owner / manager personal transactions»fewer accounting staff with brother responsibilities»hiring and retaining qualified accounting personnel can be challenging»it systems may be not be adequate or may be outdated 5

6 »The benefits of internal control procedures should outweigh their costs»key controls designed and operated by owners or managers of small entities are the primary methods of preventing and detecting errors and fraud»purely substantive approach may not be possible or effective 6

7 » Like substantive testing, auditors need to obtain evidence to be able to conclude on the operating effectiveness of the internal controls» Control testing can occur:» at specific point in time (i.e. physical inventory counting procedures at period end),» at relevant times during the period of reliance» If an auditor obtains evidence in an interim period, then changes through the year end need to be considered and subsequent period changes tested 7

8 » The auditor can decide to use prior audits evidence on control effectiveness for up to 3 years before new tests need to be performed» The best practice will be to test some of the controls each year, on rotation basis» If the auditor plans to rely on certain controls to address significant identified risk, controls must be tested in the current period. 8

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10 » The auditor communicates deficiencies in internal control and significant deficiency in internal control to those charged with governance and the management.» On a timely basis and in writing (for significant deficiency)» A description of the essence and explanation of potential impact (if possible quantify)» Suggestion for a particular remedial action» Managements actual or proposed responses to the deficiency» Statement from the auditor if further steps where taken to verify implementation of management responses 10

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12 »The revenue cycle is about: (i) providing goods and services to customers and (ii) collecting cash in payment for those sales»four main business activities performed in the revenue cycle:» Sales orders» Shipping» Billing (invoicing, updating AR)» Cash collections 12

13 » Sales order entry:» Data entry controls, such as completeness checks and automatic lookup of reference data like customer address» Reasonableness tests comparing quantity ordered to past history» Proper authorization procedures for orders and credit sales» Appropriate authorization evidenced by receipt of a signed purchase order and/or digital signatures» Accurate inventory control and sales forecasting systems» Online, real-time inventory systems» Periodic physical counts of inventory» Regular review of sales forecasts to make adjustments. 13

14 » Shipping:» Online shipping systems that check quantities shipped» Bar code scanners» Secure inventory and restricted access» Release inventory for shipping only with approved sales orders» Employees who handle inventory should sign the documents or enter their codes online to ensure accountability» Periodic physical counts of inventory» Billing:» Segregate shipping and billing functions» Sequentially pre-number sales orders, picking tickets, packing slips, and sales invoices» Ensure every shipment is recorded, since the shipment triggers recording of the account receivable» Reconciliations performed by an independent party» Monthly customer statements 14

15 » Cash collection» segregation of duties» minimizing money handling» checking that total credits to accounts receivable equal total debits to cash» monthly statements to customers» cash registers that automatically produce a written record of all cash received» daily deposit of all remittances in the bank» bank reconciliations done by an independent party 15

16 » Ordering and receiving goods and services from vendors and payment of cash for the purchases» Four basic business activities performed in the expenditure cycle:» Purchasing (ordering)» Receiving goods and services» Recording accounts payable (invoicing, updating AR)» Cash payments of payables 16

17 » Purchasing (ordering):» Approval and authorization of purchase orders» Authorized Vendors lists (vendor selection)» Online, real-time inventory and ordering systems» Computer controls for entering accurately purchase orders» Sequential numbering of purchase orders and related controls» Receiving goods and services:» Bar codes» Inspection of goods and services» Matching receiving reports with purchase orders» All invoices matched with receiving reports 17

18 » Recording accounts payable» Monthly statements with suppliers reconciled» Budgetary control» Files of long-standing receiving reports investigated» Vouchers are pre-numbered, the sequence of recording is checked» Checks and reconciliations for goods received short before or after year end» Review and approval procedures for credit notes and adjustments 18

19 » Payment of account payables» Segregation of duties» Cash planning, invoices and vouchers filed by due dates» Review of listing of supplier payments prior to release to the bank» Review of supporting documentation before release for payment, paid invoices canceled» IT controls and authorizations for electronic payments» Supplier statements, investigations and reconciliations» Checks for accurate recording of bank statements to correct supplier accounts» Controls for appropriate maintenance of supplier directory (authorizations for changes, activity logs, periodic reviews and updates) 19

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21 »Refer to template 10 and document the details of planned audit procedures to test operating effectiveness of internal controls within the (i) sales, (ii) purchases, (iii) payroll and (iv) cash cycle.»your description should provide details of controls, related audit area and assertion, sample size, and timing of the tests.»between minutes time allocated for Group Work 21