Test of Controls and Substantive Procedures.

[super_stl]

XYZ is a a sole trader business, engaged in online advertising.

As business is expanding, the owner now finds it difficult to control and maintain a hold on what is going on after the recording of accounting entries have been done.

Suggest whether XYZ should set up an internal audit team.
State what test of controls and substantive procedures should be set up at the XYZ.

[Annie]

XYZ is a a sole trader business, engaged in online advertising.

As business is expanding, the owner now finds it difficult to control and maintain a hold on what is going on after the recording of accounting entries have been done.

Suggest whether XYZ should set up an internal audit team.
State what test of controls and substantive procedures should be set up at the XYZ.
Hi,

XYZ is a sole trader and since his business has grown up he can set up a internal control system to support his growing business but he cannot set up tests of control and substantive procedures becuase these are the jobs of an auditor. If he employes a internal audit team. This internal audit team would set up a internal control system for him but this has to be evaluated by them from time to time. This is evaluated by the auditor who is a third party and who acts as an agent for the shareholders who rely on hsi report.

The auditor woudl set up the tests of controls and substantive procedures.

The test of controls set up by the auditor would be of two types
1. application controsl and the other would be general IT controls

Applicatin contorls include
control over input like authorisation contorls, completeness of the documents.
accuracy controls like check digit, range checks, exitence checks
control over processing and computer data files like file label, run to run contorls, control total, batch total , on screen prompts, audit trail
controls over output like reasonableness checks, authorised userts to outpul files, error listing
controls over standing data

General IT controls
organisation and managemnet controls
application systems development and maintenance contorls
computer oprtion controls
system software controls
data entry and program controls
other contorls
policies and procedures
segrrationg of dutires
applicatin systems development and maintenance controls
testing of the suystem
control over program changes
all new versions of program need to authorised and maintained
staff needs to be trained to use new program
program logs maintained
restricted access to system documentation
computer operatin contorls
netweork security
disaster recoery controls
back ups
access controls

Substantive procedures are audit procedures performed to detect material misstatements at the assertion level they include
tests of details of classes of transactions, account balances and disclosures and substantive anlaytical procedures

Annie

[Ulysses Kwaku Nubueke]

Annie,

I appreciate your answer provided for the issues raised in the question but need further clarifications on " If he employs Internal audit team, this internal audit team will set up internal contro system but has to evaluate them"

My problem here is that if the internal audit team is giving the mandate to set up the controls instead of management, and there is a serious problem in a future which emanate from the controls set up by the internal audit team, will the audit team be faithful enough to communicate to the sole trader that the problem arose from their lack of professional due care and deligence.

I do not think the audit team will be honest enough to question or challenge or point out their short comings to the soletrader so far as they are human beings and would not like to wash their dirty garment in public.

I think the setting up of the controls should be done by dfferent person(management) while the audit team will review it constantly and report to the sole trader.

Annie, this is just my opinion and I stand for correction.

Thank you and stay bless

Ulysses

[Acid]

Hi Ulysses,

I think that you are right that Internal auditor may not want to raise dirt on thier own shirts but as you see the role of internal auditor is to report and recommend of the internal control systems. They also tell management appropriate actions which should be taken regarding the internal control systems.

But to ensure that internal auditors dont remain biased on there opinions about controls , External auditors are there who act as police to keep check on effectiveness of the controls.

So if internal auditor tries to hide his own faults then its the external auditor who would find it out , So beware internal auditor , GTG is training many professionally qualified and highly competent auditors!

Best Regards,

Acid