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Hi i have two questions:
1 – purchase invoices are missing from sequentially numbered file and purchase invoices not sequentially numbered. Are they both same?
2 – Are Key controls and Strengths of an internal control systems same?
Thanks
1 – Not exactly. That any document is sequentially numbered means that they are issued with consecutive numbers … 20235, 20236, 20237 … this is an essential control for ensuring the completeness of recording of transactions because it allows “sequence checking”. That purchase invoices are missing from a sequentially numbered file tells you that purchase invoices are sequentially numbered but that some are missing. This is not the same as purchase invoices are not sequentially numbered.
2 – “strong” “weak” is just a general descriptor of controls. The terms “effective” and “ineffective” (referring to the operation of controls) are used to explain the audit approach (see overview at the beginning of Chapter 8).
There is no official definition of “key control” but a control is considered “key” if it addresses:
– a risk of material misstatement;
– a high risk; or
– a control objective and an assertion.
Each transaction “cycle” (sales, purchases, wages) should have controls – some of which will be considered key and other will be “non-key” (i.e. the potential impact on the financial statements of its failure is deemed immaterial and cannot cause the entire process to fail).
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