Question 3 Internal Control Systems and Tests of Controls - 20 Marks (a)...
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Accounting
Question 3 Internal Control Systems and Tests of Controls - 20 Marks (a) Testing of controls is an important audit strategy. (i) Explain two objectives of testing of controls. (5 marks) (ii) After conducting tests of controls, the auditors must document their work, explain what types of information that auditors keep, and why. (5 marks) (b) Below is part of controls for shipping goods at your client:
- Application control generates picking slip and delivery documentation when order is processed.
- Monthly reconciliation of picking slips generated with invoices issued. Three-way match of order, dispatch document and invoice.
(i) For each of the above control procedures, identify whether it is a preventive or detective control. Identify one potential inherent risk of each control procedure. (5 marks) (ii) Suggest and explain one audit technique that can test each of the above control procedures. (5 marks)
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