#96- Cash audit- internal controls in cash process- cash payment

In our earlies entries in relation to cash audit, we discussed about the audit procedures of auditing unpresented cheques. We will discuss more extensively for audit procedures in auditing cash and bank balances of our audit clients.

Auditors may consider test the internal controls of the client's cash process. For this entry, we will provide an overview of the possible audit procedures to test the internal controls in cash payment process:

(a) select certain number of random samples, and test that payment voucher are properly prepared and authorised

(b) select certain number of random samples, and test that bank reconciliations are properly prepared and reviewed

(c) select certain number of random samples, and test that journal entries are properly posted into General Ledger

(d) select certain number of random samples, and test that payment voucher details match with the corresponding payment details (e.g suppliers' invoices), etc

#48- Internal Control of Small Companies

The Accounting & Auditing blog found an interesting findings on small companies' internal control on the website. Plz follow the link from CFO.com:
http://www.cfo.com/article.cfm/12202253?f=home_featured
( Note: pasting the link in this blog is not intended to infringe the copyright of CFO.com, but to share the knowledge with the blog' reader)
Small companies always struggling in the designation and implementation of internal controls due to:
- high cost involving in initiating internal control
- high monitoring and implementation costs
- time-consuming
- insufficient personnel
- unfavorable cost vs benefit analysis
The benefits brought from implementing internal control by the small companies is always lesser than the costs. And yet, internal control is considered the foundation and fundamental for future organic growth.

#33 Risk-based audit 2

One of the argument for risk-based audit is: it is more cost efficient to focus on the risky area, rather than the traditional way. The traditional 'bottom-up' approach test almost all the details of the business, and almost every aspect of the businesses are covered (audited).

Whereas, the risk-based only focus on the risky area identified by the auditors.

#31 Weakness of Risk-based audit 1

Nowadays, the audit firms, including the Big 4 in the world adopt an top-down audit approach, so called 'Risk- based audit'. The deemed high risk areas (account) are the focus of the auditors ? Only minimal work will be done for the less-risky area.

However, the problem is auditors are the one who use the professional judgement to justify what area are risky. And, auditors might fail to identify the risky area of the business. Hence, no works were done for the risky area of the business!

#17 Risk-Based Internal Control assessment

Risk based auditing is an innovative approach focus on the key risks the firms are facing in specified industry on the way to achieve its target. For instance, Revenue Recognition while be the key risk for the Airline companies, Provision for Doubtful debts might be a significant risk for a trading company. It aims to minimize to an acceptable level, which is manageable

In this thread, we intend to at the assessment of internal control over financial reporting. It generally involved a step-by-step assessment:

1. Plan and scope the evaluation: establish assessment process. Identify significant financial reports. Define materiality. Identify significant accounts, relevant financial report assertions, and major transaction cycles. Link the accounts and cycles. Determine organizational approach.

2. Document Control: document and obtain understanding of controls for all significant accounts, groups of accounts, and transactions .

3. Evaluate design and operating effectiveness: evaluate design and operating effectiveness of internal control over financial reporting and documents results of the evaluation.

4. Identify and Correct Deficiencies: identify, accumulate , and evaluate design and operating control deficiencies ; communicate findings and correct deficiencies

5. Report on Internal Control: prepare management's written assurance on the effectiveness of internal control over financial reporting.

#7 Risk-based vs Control-based audit approach

The collapse of enron had not only posted auditors' works under the spot light , but also increased the work load of the auditors. Auditors are struggling hard to gain market confidence on their works, follwing the demise of Enron, HIH ...

There are emerging trend that the audit firm starts to move away from risk-based audit approach, and switching towards control-based approach. This has made the works more cumbersome & more tedious.