Chapter 7
Chapter 7
Chapter 7
Use with The Audit Process 4th Edition
By Iain Gray & Stuart Manson ISBN 9781844806782
2008 Cengage Learning
LEARNING OBJECTIVES
After studying this chapter you should be
able to:
Explain the significance of the layers of
regulation and control.
Define internal control and explain the
significance of the control environment and
related components, and accounting and
quality assurance/control systems.
Figure 7.2
ACTIVITY 7.1
Figure 7.3
Figure 7.4
ACTIVITY 7.2
Figure 7.5
ACTIVITY 7.3
ACTIVITY 7.4
Read carefully the description of the system
Horton Limited uses for controlling and recording
cash received from debtors, referring to Figure
7.5 as you do so. When you have done this, ask
yourself the following questions:
Would it be possible in your opinion for anyone
involved with the operation of the system to
misappropriate cash?
ACTIVITY 7.5
Figure 7.6
Organization chart
Figure 7.7
Organization chart
ACTIVITY 7.6
ACTIVITY 7.7
Figure 7.8
ACTIVITY 7.8
CHAPTER SUMMARY
This chapter has concerned itself with:
The control environment and general aspects of
accounting and control systems internal to
organizations;
The struggle to achieve business objectives in the
face of an external environment that is often of
high risk;
FURTHER READING
The important ISA in the area is ISA 315,
Understanding the entity and its environment and
assessing the risks of material misstatement. You
may also refer to ISA 330 The auditors procedures
in response to assessed risks.
You may also refer to the revised Turnbull guidance
on internal control: www.frc.org.uk/documents/pagemanager.frc/Revised%20Turnbull%20Guidance
%20October%202005.pdf.