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Tirana, 10-12 September 2014

Workshop System Based Auditing

Defining controls

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9.1 Two levels of control

• Control environment

• Control activities

=> to be matched with audit objectives

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9.2 Control environment

The control environment includes management’s philosophy and operating style, the assignment of responsibilities and the policing of control procedures. Factors of control environment include the management policy, awareness and procedures related to the control environment. These factors include: • Ethical values and management’s integrity • The setting of objectives by management and management’s risk awareness; • The management’s operating style (for example by way of codes of conduct and

procedural manuals) and the organisational structure; • how management assign responsibility, for example by the organisational

structure and separation of duties; • management’s policies to retain competent staff, such as recruitment and training

policies; • management oversight of control procedures and the operation of the accounting

system, including management review of transactions and budget monitoring (including internal audit);

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9.3 CONTROL ACTIVITIES

These are policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity’s objectives

Types are

Adequate separation of duties,

Proper authorisation of transactions and activities,

Adequate documents and records,

Physical controls over assets and records,

Independence checks on performance

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9.4 Types of audit objectives

• Transaction-related audit

objectives

• Balance-related audit objectives

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9.5 Transaction related audit objectives

Transaction-related: Occurrence

Completeness

Accuracy

Cut off

Classification

Regularity

Audit objectives:

Occurrence

Completeness

Accuracy

Posting and summarisation

Timing

Classification

Regularity

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9.6 Balance related audit objectives

Balance related:

Existence

Completeness

Valuation and allocation

Rights and responsibilities

Regularity

Audit objectives:

Existence

Completeness

Accuracy

Detail ti-in

Cut off/Timing

Classification

Realisable value

Rights and obligations

Regularity

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9.7 Transactions-related audit objectives

• Occurrence – recorded transaction occur.

• Completeness – all existing sales transactions are recorded.

• Accuracy – recorded transactions are stated at the correct amounts.

• Classification – transaction included in the client’s records are properly classified.

• Timing – transactions are recorded on the correct dates.

• Posting and summarization – recorded transactions are updated to the master files and are correctly summarized.

• Regularity - transactions must be in accordance with law and regulations

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9.8 Balance-related audit objectives

• Existence – amounts included exist.

• Completeness – all existing amounts are included

• Accuracy – amounts included are stated at the correct amounts

• Detail tie-in – account balances are supported by details in master files and schedules prepared by entity

• Cut off /Timing – transactions are recorded in proper period

• Classification – amounts included in the client’s listing are properly classified

• Realisable value – assets are included at the amounts estimated to be realised.

• Rights and responsibilities- assets and liabilities must be owned by the entity.

• Regularity - assets/liabilities must be obtained and maintained legally 13

QUESTIONS?

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