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  • This topic has 11 replies, 3 voices, and was last updated 6 months ago by Kim Smith.
Viewing 12 posts - 1 through 12 (of 12 total)
  • Author
    Posts
  • December 21, 2024 at 7:09 am #714267
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    For this test of control:

    The new sales system implemented by the company was fully tested before its implementation and old and new will be run in parallel and internal audit is comparing the output of both systems and identifying discrepancies and making recommendations to fix them

    why can’t i use unappropriate credit limits in my answer for its risk? :

    It reduces risk of misstatements in provision of bad debts/ bad debts in the FS due to unappropriate credit limits for the new hotel customers that may have poor credit scores

    December 21, 2024 at 8:35 am #714268
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8304
    • ☆☆☆☆☆

    What you are describing is not a “test of control” – a test of control is something the external auditor performs on a audit client’s controls that are expected to be operating effectively (otherwise there’s no point testing them to see if they’re working).

    The paragraph is describing changeover to a new sales system.

    What was the requirement to the Q? I don’t know why you are looking to find any “risk” in this paragraph.

    What you have written is muddled “It reduces risk of misstatements” – so this is not a risk? – but the reverse? What you say regarding credit limits then seems to be mere speculation – I don’t see how you can suppose this.

    December 21, 2024 at 10:23 am #714269
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    Extract from the question

    This scenario relates to four requirements.
    It is 1 July 20X5. You are an audit supervisor with Walsh & Co. You are currently reviewing
    notes in relation to the internal controls in place at your client, Whittaker Co. Whittaker Co
    manufactures and sells luxury bed linen wholesale to the hotel trade and direct to the public
    from its factory store. It has a year ending 31 August 20X5.

    Sales
    Whittaker Co implemented a new sales system in May 20X5. The new system was fully tested
    prior to its implementation and will be run in parallel with the old system until the year end.
    Whittaker Co’s internal audit (IA) department is responsible for comparing the output from
    the old and new systems, investigating any discrepancies and making recommendations for
    further action.

    The company operates a fully automated credit check process for all its new hotel customers.
    The automated system generates a credit limit for each new customer which the sales
    director approves before the customer can place any orders. The sales director evidence
    approval of the credit limit in the system
    ————————————————————————————————————————-
    You are right, what it truly is a direct control instead of a test of control.
    so, requirement of the question is to give the direct control and its risk it is preventing.
    can you help?

    December 21, 2024 at 12:06 pm #714272
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8304
    • ☆☆☆☆☆

    I still don’t see where you are getting the word “risk” from – have you read the examiner’s report on this Q? https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f8/examinersreports/aa%20examiner’s%20report%20march%20june%202022.pdf

    December 21, 2024 at 1:07 pm #714273
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    The link you provided is displaying this:

    Looking for something?
    Sorry we can’t find the page you were looking for. It has either been moved, deleted or does not exist. You can try searching or visit our most popular pages.

    Can you help?

    December 22, 2024 at 7:10 am #714284
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8304
    • ☆☆☆☆☆

    You can download the M/J22 report from here https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/examiners-reports1.html

    December 22, 2024 at 11:20 am #714292
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    EXTRACT from examiners report :

    for example, the automatic credit
    check and review of credit limits by the sales director are not separate controls as
    any system generated credit limit would need to be reviewed for reasonableness by
    a responsible official.
    Having identified direct controls, candidates then need to explain each control. In
    considering this it is important to think about what the aim of the control is, what
    potential misstatement is being prevented or detected.
    ———————————————————————————————————————————-
    what i am referring as risk is in fact the implication of the test of control.

    December 22, 2024 at 6:06 pm #714294
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8304
    • ☆☆☆☆☆

    A direct control is aimed at reducing a risk of misstatement.
    A test of control tests the operating effectiveness of a direct control.

    (Avoid saying risk is an “implication” of tests of controls – that is most confusing.)

    IA comparing output of the two systems and investigating differences is a direct control – its aim (presumably) to detect whether any data is lost/inaccurate, etc – thereby reducing the risk of incomplete/incorrect sales data in the new system.

    December 23, 2024 at 6:37 pm #714306
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    Extract from the question

    The company operates a fully automated credit check process for all its new hotel customers.
    The automated system generates a credit limit for each new customer which the sales
    director approves before the customer can place any orders. The sales director evidences
    approval of the credit limit in the system.

    ——————————————————————————————————————————

    does this mean that the sales director has the authority to decide which customer order to be approved and he might cancelled one with poor credit rating?

    December 24, 2024 at 5:35 pm #714316
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8304
    • ☆☆☆☆☆

    A test of control is to test a “strength” – so when given a control – don’t try and turn it into a weakness.

    “Approval” – here of automated credit limits – is a good example of a control activity. The auditor would test this control by looking at the evidence of the directors approval – e.g. a digital signature.

    The automated system should not be giving any credit limit to a potential new customer with a poor credit rating. If it did, the sales director would simply not approve it – that does not mean “cancelling it” – since no approval has yet been given.

    December 25, 2024 at 8:02 am #714320
    farhaanm
    Participant
    • Topics: 165
    • Replies: 73
    • ☆☆☆

    Refer to your answer above=

    A direct control is aimed at reducing a risk of misstatement.

    ——————————————————————————————————————
    does below give a more complete definition of what is a direct control?

    Direct control – which is achieving some objective of organization / preventing some risk to organization ( some impact related to FS)

    December 25, 2024 at 8:18 pm #714326
    Kim Smith
    Keymaster
    • Topics: 134
    • Replies: 8304
    • ☆☆☆☆☆

    A direct control is “sufficiently precise to prevent, detect or correct misstatements” see page 73 of our notes.

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