[Broag]

I’m getting hung up on how to implement certain ICs when presented with a situation. I feel like I understand Audit fairly well, but implementing ICs and understanding the certain operating cycles has always been a bit of a crapshoot for me. An example would be:

Invoices are sent for shipped goods and are recorded in the sales journal, but are not posted to the customer account. The IC would be: Control amounts posted to the accounts receivable ledger are compared with control totals of invoices.

Another example would be:

Customers’ checks are received for less than the customers’ full account balances, but the customers’ full account balances are credited. The IC would be: Total amounts posted to the accounts receivable from remittance advices are compared with the validated bank deposit slip.

For some unknown reason, I can’t wrap my head around situations like this. Can anyone help me understand the IC process in terms of suggesting or implementing ICs for a company or client? Does anyone have a watered-down explanation? I really need this whole IC process dumbed down.

Any clarification would be really helpful. Thank you!

REG - 79
FAR - ?
AUD - ?
BEC - ?

[Anonymous]

Internal controls are implemented to mitigate risk. So you just have to think how that can be accomplished.

There is more to the process of accounting than just recording transactions in a computer. You have managers, vendors, customers, etc. all who essentially want to understate their expenses/liabilities and overstate revenues/assets in order to give them a better financial position for various reasons (it could be because they will be awarded a bonus for meeting goals or to meet debt covenants for a loan, etc…depends on the stakeholder and situation.) With that said, of course we want to believe most people are honest and don't care to manipulate their financials, but as auditors, these are all risks we have to be mindful of.

So you basically have to understand the accounting processes and how things flow to make sure there are no holes in the system. That means understanding the relationship between a business and their accounting department, the vendors, the banks, and the customers. I'm not sure there is an “easy” way to understand it (since there are a number of accounting processes each with a number of different controls that can be implemented) other than first understanding what the point of internal controls are and what they are meant to accomplish.

It's very interesting to learn about and understand internal controls from a conceptual level. You see it in the ranks of the military, you can see it on the football field, within a family and how they function, in the mafia and cartels, and of course in government, etc. All the processes in place to mitigate risk and enhance accountability.

[Anonymous]

PS. Notice how I didn't mention police departments. That's because they greatly lack internal controls and accountability.

Just a friendly fun-fact/FYI 🙂

[studysled]

That was the most interesting way I've ever heard internal controls described. Well done!

[Broag]

This is great. Does anyone have more info on Test of Controls and the transaction cycles (revenue, expenditure, payroll, etc.)? I found some pretty good videos on YT, but maybe someone has a cheat sheet or some notes that I could look at?

REG - 79
FAR - ?
AUD - ?
BEC - ?

[Earla Riopel (NYCARE)]

If you haven't already, spend more time in these areas:
– segregation of duties.
– control environment
– control activities
– assertions
– substantive testings
– test of details
– audit objectives
– audit procedures
– ratio analysis
– financial analysis
– familiar with types of reports
– professional responsibilities (Business Law – more administrative req)
– some IT terms
– Be familiar with Research tools: max 10-15mins
– Time management: 45-45-30-60-60 split.
– If you're not crunch, read the whole textbook/notes & explanation for MCQs/SIMs even the ‘incorrect ones'.

[Author]

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