Compliance tests

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    patrickch
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    Dear tutor,

    I learnt from the manual that for income transactions where all customer orders are approved by the manager in terms of credit worthiness while the sales invoices are approved by another person, ie.the supervisor and recorded on in the sales day booking daily basis, these procedures are the good internal control ones which the auditors may rely on for performing compliance tests.

    Would you mind guiding me on what these controls are good for checking the sale transactions? Could they be good for checking the assertion of occurrence, completeness and accuracy of sales transactions?

    Thank you for your help.


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    gromit
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    These are internal controls that the auditor would test to see if the system was working as it should be ie that it was being complied with.
    The controls you talk about are primarily segregation of duties, so that several people are involved in each transaction. Occurrence is helped because it would be difficult for one person to put through a fake transaction; completeness would require an additional control, such as reviewing the numerical completeness of invoices issued; accuracy is helped by segregation of duties because on person might pick up another’s error. Accuracy would be even better addressed if the postings to the sales account were made from the totals in the sales day book.


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    patrickch
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    Dear Gromit,

    Thank you very much for your kind guidance.

    As for accuracy assertion that you mentioned, I am however rather confused about the difference between the accuracy and valuation assertions.

    In particular, why does the accuracy assertion appear in the “transaction & events” category, while we have only rights and obligations assertions and yet without the accuracy assertion under the “balances” category ?

    And, if the accuracy assertion of a transaction is satisfied, am I to understand that the transaction is accurate in amount? If yes, then what does the valuation assertion lead up to?

    I would be obliged if you could give me some more help on this. Thanks.


    Avatar of gromit
    gromit
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    You make a very good point, and I have long tried to find out, with no success, why accuracy does not seem to relate to balances. You would certainly expect cash to be accurate.

    As for the distinction between accuracy and valuation, you could have a list of non-current assets which is accurate as to their description etc, but their valuation might be wrong (though accuracy would no be one of their assertions).

    I find much of the split of the assertions between balances, transactions, and presentation and disclosure unhelpful. I can only suggest you try to learn what’s what and not think too deeply!

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