Write brief explanatory notes on the following audit terms:
a) Control procedures; (4 marks)
b) Internal check; (4 marks)
c) Vouching audit; (4 marks)
d) Walk-through tests; (4 marks)
e) Weakness tests;
a) Control procedures are those policies and procedures in addition to the control environment which management has established to achieve the entity‘s specific objectives. Control procedures include the following:
– Preparation and review of reconciliation‘s;
– Checking the arithmetical accuracy of the records;
– Having proper segregation of duties;
– Physical controls to safeguard the assets of the company;
– Controlling applications & environment of computer information systems
e.g. establishing controls over:
• Changes to computer programs.
• Access to data files.
– Approving and controlling the use of documents.
– Limiting direct physical access to assets and records.
b) Internal check is an element of the internal control system which ensures that the activities of an individual in the organization or entity, is automatically, checked another individual.
Internal check is boosted the segregation of duties such that no person can carry out a transaction from initiation to conclusion without his work coming under the check of another person.
Internal checks can also be defined as: ―The checks on the day to day transactions which operate continuously as part of the routine system wherethe work of one person is proved independently or is complementary to the work of another, the objective being the prevention or early detection of errors and fraud‖.
c) A vouching audit is also known as a substantive audit.
This audit approach involves checking the authenticity of recorded transactions inspecting the document(s) used in processing of the transaction. It is proving that the transactions occurred, they are complete, correctly measured and they relate to the correct period if they are of a revenue or expense nature.
d) A walk-through refers to the auditor selecting a particular transaction and tracing (or walking) it through the accounting information system from the time it was first
captured and input as data to its final disposition in the financial statements. The purpose of the walk-through may be either for the auditor to identify specific control procedures or to confirm an existing understanding of control procedures in the accounting information system. The walk-through may be the tracing of an event, either part way through the system or entirely through the system, depending on the extent of the evidence or knowledge required the auditor.
e) Weakness tests.
These are tests carried out to areas of weakness in the internal control system. The objective is to identify weak controls where corrective action should be taken to enhance the internal control system.