TEST OF INTERNAL CONTROLS YOU WOULD EXPECT TO SEE IN OPERATION OVER SALES FROM ORDERING TO

FINAL CASH COLLECTION .

A. Sales Order:
 The auditor should review that the credit score of the new customers are being checked by the
management before accepting orders through checking the copy of the document.
 Making sure that the sales team is not offering discounts more than the standard discount rates
available, if additional discounts are being offered, it is authorized by superiors. It can be done
be checking the copy of quotation sent by the sales team.
 Inspect the work done by the sales team to make sure that the sales order received have been
recorded in a sequential manner.

B. Sales Dispatched:
 Observe that all the goods are being dispatched only after passing a thorough quality check
procedure done by a specialized quality checker.
 Inspect that the Goods Dispatched Notes (GDNs) and Sales Order have the same quantity,
quality, and pricing for the goods to ensure appropriate goods are being sent to the customer.
 Observe that the goods leaving the company’s premises are actually being authorized and not
merely a formality.
 Performing a walk-through test on the GDNs to ensure they have been recorded in a proper
sequence.

C. Sales Invoicing:
 Inspection of the invoices that they have been recorded in correct accounts. Also make sure that
the invoices that were sent are accurate in quantity, pricing, and customer details.

D. Sales Recording:
 Observing the recording process and system developed by the company to ascertain sales
transactions are being recorded as soon as they are performed to avoid any kind of timing and
date issues.
 Assure that a cut-off in the revenue is maintained by checking if revenue of other accounting
periods are being recorded in the current year balances.

E. Payment Received:
 Review that the cash/payments received have been recorded in the accounts of correct
customer. Also, ensure balances of customers who are no longer able to pay have been
transferred to irrecoverable debts and inspect whether or not allowance for receivables are
created for customer who delay the payments longer than the agreed credit term.
TEST OF INTERNAL CONTROLS YOU WOULD EXPECT TO SEE IN OPERATION OVER PURCHASES FROM
REQUISITION & ORDER PLACEMENT TO FINAL CASH PAYMENT.

A. Requisition and Order Placed:

 The auditor should review that the credit score of the new suppliers are being checked by the
management before placing orders through checking the copy of the document.
 Inspect the work done by the purchase department to make sure that the purchase orders that
are placed have been recorded in a sequential manner.
 Inspect the requisition forms sent to the suppliers to assure that purchase orders are being
authorized by superiors.
 Review the quotation document to ensure that the procurement department is accepting
quotations with reasonable pricing and compare the standard/official prices and discount rates
with the accepted ones.

B. Goods Received:
 Observe that all the goods are being received only after passing a thorough quality check
procedure done by a specialized quality checker.
 Inspect that the Goods Received Notes (GRNs) and Purchase Order have the same quantity,
quality, and pricing for the goods to ensure appropriate goods are being sent by the supplier.
 Observe that the goods incoming to the company’s premises are actually being authorized and
not merely a formality. Inspect signatures of a senior to verify that.
 Performing a walk-through test on the Goods Received Notes (GRNs) to ensure they have been
recorded in a proper sequence.

C. Invoice Received:
 Inspection of the invoices whether they have been recorded in correct accounts. Also make sure
whether the invoices that were received are accurate in quantity, pricing, discounts, and
supplier details.

D. Purchase Recording:
 Observe the recording process and system developed by the company to ascertain purchase
transactions are being recorded as soon as they are performed to avoid any kind of timing and
date issues.
 Assure that a cut-off in the purchases and payables is maintained by checking if balances of
other accounting periods have been included in the current year balances.

E. Payment Made:
 Review that the cash/payments settled have only been made once have and recorded in the
accounts of correct supplier.
  Ensure balances of suppliers who are no longer required to be paid have been recognized as
income in the financial statements.

F. NOTE: (For purchases of NCAs)

All the process is same as above. Only the differences are:
 Transactions involving purchase of NCAs are likely to be reviewed in more detail significantly as
they may possibly halt the production process.
 Purchase of NCAs require more substantial authorization from senior management because they
cover significant amount of budget of the company.

TEST OF INTERNAL CONTROLS YOU WOULD EXPECT TO SEE IN OPERATION OVER PAYROLL CYCLE OF A
COMPANY.

 Inspect the application forms and appointment letter of the employees to ensure that the
company obtained all the details of employees like identity proof, photograph, bank details and
signatures.
 Review the employee reconciliation report to assure that number of employees in the
documents of human resource department agree with actual working employees.
 Obtain the clock cards and time sheet documents to ensure working hours claimed by the
employees and actual hours worked agree and verified/signed by senior manager.
 Observe whether the clock card machines are kept in a secure environment, possibly kept under
CCTV surveillance to void/discourage clocking from other staff or friends.
 Enquire with the management to confirm whether overtime hours worked are verified by senior
prior to their appliance.
 Inspect whether controls such as password protection have been put in place to preserve the
salary/remuneration/pay details of the employees.
 Review the salary documents to validate that calculations of payments for new employees
joining or previous employees resigning are manually verified by a senior manager.
 Review the pay slip document to ensure employees receive their remuneration in Net not Gross
and their payments are authorized by payroll department manager.
 If employees are paid in cash, review the receipt given to them and ensure it is signed by the
employee prior to accepting the salary pay.

TEST OF INTERNAL CONTROLS YOU WOULD EXPECT TO SEE IN OPERATION OVER INVENTORY SYSTEM OF A
COMPANY.

 Inspect the control procedures put in place by the company to ensure valuable items of
inventory are kept in secure warehouses along with CCTV surveillance protection.
 Observe whether any security guards are appointed for regular patrol for inventory protection
from theft, damage, and wastage.
  Inspect whether certain inventory items are kept in a temperature regulated warehouse, where
necessary. Maybe the product or the industry in which company operates requires to do so.
 Observe the process of inventory usage and handling to ensure that warehouse staff are well-
trained and adequately skilled to handle delicate inventory items.
 Attend the physical inventory counting process to assure that appropriate inventory stocktaking
is performed as the policies require. Advice the management that Annual year-end stocktaking
or Continuous stocktaking or Full year-end stocktaking methods can be adopted.
 Review the counting sheets and bin card to verify that inventory product name, codes and
description are printed on them.
 Enquire with the senior supervisor whether inventory is held at third-party warehouses and visit
them personally to obtain assurance on inventory valuation.

TEST OF INTERNAL CONTROLS YOU WOULD EXPECT TO SEE IN OPERATION OVER CASH AND BANK SYSTEM
OF A COMPANY .

 Inspect the control procedures put in place by the company to ensure cash is kept in secured
environment along with CCTV surveillance protection.
 If tills (cashboxes) are used to keep cash, observe, and inspect that they are locked, accessible to
an individual with a key, password, or swipe card.
 Review the reconciliation report and supporting documents to make sure that actual physical
cash agrees with the cash mentioned in report.
 If cash is being taken out of the company to banks, observe and confirm that security vans are
used for that purpose.
 Attend the cash counting procedure and ensure that count is undertaken by two individuals
ideally along with a supervisor. However, the auditor should never perform the count by
themselves.

NOTE: THE TEST OF INTERNAL CONTROLS MENTIONED ABOVE ARE GENERAL AND VAGUE. WHILE DEALING
WITH QUESTIONS , THOSE MUST BE DESCRIBED IN A WAY THAT THEY AGREE WITH THE SCENARIO GIVEN IN
THE QUESTION . THOSE PROCEDURES CAN BE USED CONTROL PROCEDURES AS WELL, A LL THAT CHANGES IS
MERELY REMOVAL OF “AEIOU”.