Financial systems and auditing assignment 2

Unit OutcomesOutcome Evidence for the criteria Feedback Assessor’s decision Verification Internal First Attempt Re-work Be able to contribute to the planning and conduct of an audi

BANKING ACADEMY OF VIETNAM BTEC HND IN BUSINESS (ACCOUNTING)

ASSIGNMENT COVER SHEET

We _Maple Group _ hereby confirm that this assignment is our own work and not copied or plagiarized from any source We have referenced the sources from which information is obtained by us for this assignment.

Signature of members Date

6 th Jun 2014 _

Serial

No

Group member (Vietnamese Name)

Group member (English Name)

F05-

-FOR OFFICIAL USE

Assignment Received By: Date:

Unit Outcomes

Outcome Evidence for the criteria Feedback Assessor’s decision Verification Internal

First Attempt

Re-work

Be able to

contribute to

the

planning and

conduct of an

audit

assignment

LO3

Plan an audit with reference to scope, materiality and risk

3.1

Identify and use appropriate audit tests

3.2

Record the audit process in an appropriate manner

3.3

Be able to

prepare audit

reports

LO4

Prepare a draft

Draft suitable management letters in relation

to a statutory audit

4.2

Assignment

( ) Well-structured; Reference is done properly / should be done (if any)

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Outcome Evidence for the criteria Feedback Assessor’s decision Verification Internal

First Attempt

Re-work

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE DATE / /

NAME:

(Oral feedback was also provided)

STUDENT SIGNATURE DATE / /

NAME :

FOR INTERNAL USE ONLY

VERIFIED YES NO

DATE :

VERIFIED BY :

NAME :

FINANCIAL SYSTEMS AND AUDITING

Prepared for:

Lecturer, Dr Jun Alejo Bathan Unit 11: Financial Systems and Auditing

Banking Academy, Hanoi BTEC HND in Business (Finance)

Prepared by: Maple Group

Vương Thị Quỳnh Anh - Lynn Ngô Thị Huyền Trang - Jess Nguyễn Phương Thảo - Key Nguyễn Thị Kiều Anh - Snow

Submitted: 06/06/2014

3.3 Record the audit process in an appropriate manner

3.3.1 Working papers

Working papers mean the record of audit procedures performed, relevant audit evidence

obtained and conclusions the auditor reached It may be in the form of data stored on

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paper, film, electronic media or other media In order to support audit process, the working papers are prepared that must be sufficient, appropriate and follow ISAs Besides, the data included in working papers should be focus on important and necessary aspects and follow a suitable arrangement in format Thus for avoiding errors

of documenting and save time, Burton Housing should use automated working paper packages (computerized working paper) that helps company to make the documenting of

audit work much easier These are automatically cross referenced and balanced by the computer Wherever an adjustment is made, the computer will automatically update all the necessary schedules (BPP, 2010)

• Content and format of working papers

Typical contents of working papers Format of working papers

- Information concerning the legal and

organizational structure of the client

- Information concerning the client’s

industry, economic and legal environment

- Evidence of the planning process

- Evidence of the auditors’ understanding of

the accounting and internal control

systems

- Evidence of inherent and control risk

assessments and any revisions

- Analyze of transactions and balances

- Analyze of significant ratios and trends

- A record of the nature, timing, extent and

results of auditing procedures

- Copies of communication with other

auditors, experts and other their parties

- Copies of correspondence with the client

- Reports to directors or management

- Notes of discussions with the entity’s

directors or management

- Notes of discussions with the entity’s

directors or management

- A summary of the significant aspects of

the audit

- Copies of the approved financial

statements and auditors’ reports

- The name of the client

- The balance sheet date

- The file reference of the working

paper

- The name of the person preparing

the working paper

- The date of working paper was prepared

- The subject of the working paper

- The name of the person reviewing

the working paper

- The date of the review

- The objective of the work done

- The sources of information

- The work done

- A key to any audit ticks or symbols

- The results obtained

- Analysis of errors or other

significant observations

- The conclusions drawn

Table: The contents and format of working papers (BPP, 2010)

• Standardized working papers

In order to improve the efficiency for preparing and reviewing of working papers,

checklists, standard audit programmes, and specimen letter should be used

There are some advantages and disadvantages that Burton Housing should consider before using standardize working papers:

Advantages

- Improve the efficiency

- Provide a guideline for auditors in order to control the quality of audit that meet the minimum requirements

- Ensure that all audit areas are done

Disadvantages

- The staffs of clients also can follow and do the audit with the method

- Less initiative, work is mechanical (BPP, 2010)

• Audit files

For recurring audits, working papers may be split between permanent and current audit files

- Permanent audit files are updated with new information of continuing

importance such as legal documents, background information and correspondence with the client of relevance for a number of years

- Current audit files contain information relating primarily to the audit of a

single period (BPP, 2010)

3.3.2 Recording of accounting and control systems

There are several techniques for recording accounting and internal control systems:

• Narrative notes

• Flow charts

• Questionnaires

• Checklists

A combination may be used, with narrative notes and/or flowcharts recording the accounting systems, the questionnaires recording control

a) Narrative notes

Narrative notes are easy to record but are difficult to change if written manually Editing

in future years will be easier if they are computerized Its purpose is to “describe and explain the system, at the same time making any comments or criticisms which will help

to demonstrate an intelligent understanding of the system” Narrative notes can be used to support for flowcharts (BPP, 2010)

In case of Burton Housing - a small charity and housing association, by using narrative notes, it can record the system of daily transactions in the restaurant easier All transactions/documentation can be handled by just one or two persons The auditor can confirm existence of transactions/records by the means of walk through tests It helps auditor evaluate operating system in order to decide if the system notes is suitably 6

designed and constitutes a reliable basis for the preparation of the financial statement From that, auditor can recommend for Burton Housing way to change its system if necessary

b) Flow charts

Flowcharts are a great tool to use to visualize complex systems involved in an

organization and are easier and less time consuming for someone to understand than a narrative By placing everything in a visual manner it will be easier for an auditor to see the redundancies and an organization's system of internal accounting control (Ivanko, n.d.)

There are two methods of flowcharting in regular use:

• Document flowcharts: A document flowchart emphasizes the hardcopy inputs and

outputs and their flows through organizational units Auditors and accountants may use document flowcharts when analyzing a current system for weaknesses in controls and reports

• Information flowcharts: Information flowcharts are prepared in the reserves

direction from the flow: they start with the entry in the accounting records and work back to the actual transaction They concentrate on significant information flows and

key controls and ignore any unimportant documents or copies of documents (BPP,

2010)

Table: Flow charts of Burton Housing’s purchasing food

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A check function

An operation

File (N = numerical order)

Document flow

Information flow

3-part document

Document

Ledger

Table: Flowchart’s symbols

c) Questionnaires

There are two types of questionnaires, including Internal Control Questionnaires (ICQs)

and Internal Control Evaluation Questionnaires (ICEQs)

Purposes For certain controls exist Identify whether whatever controls the

system fulfilling specific objectives or relying on that to prevent weakness  assess specific

errors/ frauds Principles - Comprise a list of questions to

determine present desirable controls

- Formulated, so there is on to cover each of the major transaction cycle

Control questions

Design List of questions with the answer of Yes

or No

 “No” answer indicates for the weaknesses of system

List of questions with Yes or No answer

 “Yes” answer would require explanation

Advantages - Consider all controls

- Prepare quickly

- Easy to use and control

- Easier to apply

- Enable to identify the most important controls

- Could highlight the areas of weakness with required extensive substantive testing

Disadvantages - Overstated controls for respondents

- Include large number of irrelevant controls

- Not include unusual controls which are effective in particular circumstances

- Drafted vaguely

- Misunderstood

- Not identify important controls

Examples For goods inward:

- Are suppliers examined on arrival

as to quality and quantity?

- Is the receipt of supplies recorded?

For sale cycle:

- Sales are properly authorized?

- Sales are made to reliable payers?

- All goods dispatched are invoiced? Table: The different types of questionnaires (BPP, 2010)

In case of Burton Housing, questionnaires are issued after each audit has been completed

The questionnaires are issued with the aim of assessing their views on the audit process It

provide opportunities to respond to any arising issues timely and allows internal audit team to

understand what is working well and areas where the process can be improved

Rent Procedure

Is the rent system operating effectively?

Is information about allocating rooms to individual sent to

bookkeeper from housing manager?

Are the rents posted to each resident’s account on the sales ledger

each week?

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Is rents received from residents by reception staff who are

independent of housing manager and bookkeeper?

Is reception staff responsible for giving rents to the bookkeeper?

The bookkeeper posted cash received for rents to the sales ledger,

enters them in the cash book and pays them into the bank?

The housing manager reports void (room unlet) to the management

committee?

Purchasing food procedures

Is the purchasing food system operating effectively?

Is the food ordered by sending an order to the supplier by restaurant

manager?

Is the food received checked by the restaurant manager?

Is the purchase invoice authorized to confirm the food has been

received by the restaurant?

The bookkeeper posts the purchases invoices to the payables ledger?

The bookkeeper makes out the cheques to pay the suppliers?

Are the cheques posted to the payables ledger and cash book?

d) Checklists

Figure: Example of Internal control audit document review checklist

An internal audit checklist is an important road map that enables corporations to identify potential problems in their operating activities More importantly, the checklist helps internal auditors conduct corporate reviews in accordance with generally accepted auditing standards

It also enables auditors to review internal processes in conformity with Institute of Internal Auditor guidelines (Codjia, n.d.) Therefore, it might be useful tool in audit process of Burton Housing

Works Cited

BPP, 2010 In Auditing and Financial Systems and Taxation London: BPP Learning Media Ltd.

Codjia, M., n.d Internal Audit Checklist Guide [Online] Available at:

http://www.ehow.com/list_7483455_internal-audit-checklist-guide.html [Accessed 24 May 2014].

Ivanko, M., n.d The Advantages of Flowcharts for an Auditor [Online] Available at:

http://www.ehow.com/list_6814125_advantages-flowcharts-auditor.html [Accessed 24 May 2014].

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