Test of Controls': School of Business Studies ACCA F8 - Audit & Assurance P2P Session by SK - Test of Controls (TOC) 1/2

KnS School of Business Studies
ACCA F8 - Audit & Assurance

P2P Session by SK - Test of Controls (TOC) 1/2
‘Test of Controls’
Page 1 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

ACCA F8 TOC Practice Questions
S. No. Questions Attempts Marks
1 Pear International Co Jun-2012 15 marks
2 Oregano Co Dec-2013 14 marks
3 Fox Industries Co Jun-2013 14 marks
4 Amberjack Co Sept / Dec 2019 20 marks
5 Swift Co Sept / Dec 2020 20 marks
6 Halley & Co Sept / Dec 2017 15 marks
7 Rocky Co March / July 2020 16 marks
8 Blair & Co Dec-2011 12 marks
9 Apple & Co Mar / June 2021 30 marks
10 Lily Window Glass (Co) Dec-2012 12 marks
11 Pomeranian Co Sept / Dec 2021 16 marks
12 Scarlet & Co Sept / Dec 2015 17 marks
13 Hessonite & Co Mar / June 2016 15 marks
14 Raspberry Co Mar / June 2018 20 marks

S. No. Index of Test of controls

1. Index of ACCA F8 Practice Questions
2. Expected questions on T.O.Cs
3. General Internal control weaknesses
4. Sales Cycle
5. Purchase Cycle
6. Cash & Bank Cycle
7. Payroll Cycle
8. Further important Internal Control weaknesses and Internal Controls
9. Sales Cycles Kay Summarized Points
10. Purchase Cycle Kay Summarized Points
11. Payroll Cycle Kay Summarized Points
12. Internal Controls on Inventory Counting Process (For TOC Questions)
13 Constructing T.O.C’s from Controls ………. (Few Examples)
14. Further ACCA F8 Questions

Expected Questions on T.O.Cs

General Internal control weaknesses
(For MY ACCA F8 Cheetahs to start with…  )

1. Purchase Orders are not made when ordering for good and services.
2. Purchase Orders are not sequentially pre-numbered
3. Sales invoices are not approved / authorized
4. Sales Invoices are not sequentially pre-numbered.
5. Dispatch Notes are not signed by the customers at the time of delivery of goods.
6. Purchases are not made from authorized vendors.
7. Bank reconciliations are not prepared & reviewed regularly by authorized personnel.
8. Supplier statements are not reconciled with creditors control account on regular basis.
9. Sales discount & credit limits are not approved by Senior/Authorized personnel.
10. Sales/Customer Orders are not documented and approved by authorized personnel.
11. Monthly payroll sheets are not approved.
12. Cash is not timely banked when received.
13. Annual Bonus is not approved by H.R department
14. Monthly / weekly overtime hours are not approved by authorized personal.
15. Payslips are hand written and not system generated.
16. Monthly time sheets are not approved by departmental heads.
17. Sales master records can be accessed by junior sales clerks.
18. Purchase master records can be accessed by junior purchase clerks.
19. Payroll master records can be accessed by junior purchase clerks.
20. Sales credit limits are not reviewed annually by the sales department.
21. Online ordering system is not linked with the inventory system.
22. Recovery from customers is done by sales staff rather than recovery / credit dept.

Sales cycle / system
Start
Every customer has a

unique customer I.D. Customer approaches the By Independent credit agency or by
company company’s own credit department
Credit terms &

Credit limit to be set
Raises Query
For the product And inserted into
Master records by
responsible official
Credit limit & terms must

NOT be set by junior clerk / staff.
Via online SALES ordering Credit worthiness of customer

system to be checked/ verified
______________________________
Online ordering system
must be linked / integrated Sales Quotation to be given to Yes No
with the inventory system the customer
Manual Quotation by sales staff Refuse the

Quotation must be provided by Customer
responsible official. Purchase order (P.O) to be
given by the customer
Sales discount (If any)
1) Sale order form must be Sales order to be given by the Must be approved by Responsible
documented Official And inserted in
2) Sale order must be sequentially company Customer master records
pre-numbered
3) Inventory must be checked at a time of issuing sales order
4) Sale order form must be pre-printed having 3-4 copies. Sale discount must not be
approved by junior clerks or
junior sale staff.

Sales department to inform This intimation to

dispatch department / stores dispatch / warehouse
Dept
dept. must be made on
Dispatch department prepares time
to deliver the goods to the
customer 1. GDN is documented
2. It is sequentially pre-numbered.
Daily pick list is prepared by 3. It is approved by authorized or
Warehouse Team / dispatch responsible official.
team ly basis.
At the time of goods being loaded Vehicle dispatching the Goods Goods Dispatch
there should be a comparison between Note (G.D.N) is
the original P.O, S.O & Daily pick list made at the time of
dispatch of goods
from the factory /
Packing list must be installed
warehouse
or placed on the goods before dispatched
Delivery Note (D.N) is signed It's an acknowledgement that the

by the customer at the time of good have been received by
dispatch of goods the customer.
Sales invoice must be

Dispatch department to inform Sequentially pre
finance department to raise numbered
commercial / sales invoice It must be approved by
responsible official.
Invoice must be
dispatched
on timely basis.
End

Important Points for Sales Cycle:
1. Credit limits to be reviewed periodically (per annum) by authorized personnel.
Risk
Sales being made to poor credit risk leading to irrecoverable debts or risks of losing revenue.
2. Credit limits to be set by credit dept OR independent credit agency and approved by sales director/
credit controller. (Preferred Credit Controller)
RISK
Risk of excess credit limits resulting in irrecoverable debts for the company. (decrease in company
profits)
3. Sales staff should not have access to master records / master data files.
Risk
Risk of unauthorized amendments resulting in loss of sales revenue or over charging of customers
plus could increase the risk of fraud.
4. Inventory availability to be checked at the time of issuing sales order.
Risk
Risk of unfulfilled customer order + customer dissatisfaction + negative Goodwill of the company.
5. Invoice must be prepared either by the sales dept. OR finance dept as the case may be. (as per SOP
of the company)
Risk
Risk of Wrong invoices or mistakes in invoices can also lead to over or under charging to
customers.
6. Sale dept shouldn't be involved in the recovery of receivables OR chase receivables because it’s the
job of recovery dept./ credit dept.
Risk
7. Sales invoices to be approved and dispatched to customers on a timely basis.
8. Any communication within sales Department should be formal that is via internal memorandum
or other formal document.
9. Sales order must have multiple copies (Min 4 to 5 copies) one for customer, one for sales dept.
itself, one for warehouse & one for finance dept.
10. GDN's to be filed in the ware house as well as sent to finance dept on timely basis so that sales
invoice can be raised on timely basis.
Risk: Loss of sales revenue as sales invoices will not be raised and recorded on timely basis.

Purchase cycle / system
Start
Material Requisition (MR) Request from user department

It shall be documented
It should be sequentially
pre numbered Issue from
Must be approved by authorized Material/ Purchase requisition to be Yes Stock
Official / person raised by user department Department
1) Quotation to be obtained from No

approved vendors Purchase Manager to obtain
2) The purchase to ensure value for Quotation
money (3E`s)
3) At the time of purchase, recorder
level to be verified 1) Inspection of goods to be
Goods received in the factory made.
4) Seq. Pre numbered P.O to be
raised 2) Match the physical goods
received
with P.O to verify both
5) GRN’s to be sent to respective G.R.N to be made Quantity & Quality.
dept. on timely basis (4 Copies)
1) Documented
Invoice received from supplier/ 2) sequentially pre numbered
vendor 3) Must be approved by
authorized official
Match supplier / Purchase Invoice Reconcile these documents

to ensure correct payments
with purchase order and G.R.N
Payment to be made to supplier by

Finance department
End

Important Points for Purchase Cycle
1. Purchase orders to be made for all purchases incurred irrespective of the amount of P.O, however
there should be authority limits / authority slabs for the approvals.
2. Within shops / branches there must be intra branch purchase system so that if goods are not
available in one shop / branch they can arranged from other giving convenience to customers.
3. Purchase order should not be approved by junior clerks/ staff.
4. There must be proper segregation of duties in the purchase cycle / purchase department.
5. Supplier list should be updated annually and approved by senior personnel.
6. When selecting new suppliers / vendors input to be taken from all department heads and not only
procurement department.
RISK
If input only taken from Procurement department or junior staff than there is a risk of biased
decisions or risk of fraud in purchases.
7. When selecting suppliers to procure good/services, all factors to be considered like rate, quality,
speed of delivery and other after sales service.
(Value for money to be ensured)
8. Liability to be recorded on the basis of GRN and not on the basis of supplier invoice.
RISK
If liability is not recorded on the basis of GRN, there is a risk that liability will not be recorded on a
timely basis and purchases and payables will not be recorded correctly.
Common points for both Purchase and Payment Cycle

9. When approving payments for suppliers, breakup of total payment to be reviewed and approved
rather than approving lump sum payments.
RISK
Risk of payment being made to fictitious suppliers or incorrect payment made to suppliers.
10. In order to manage cashflows, there should not be delay in payment to suppliers.
RISK
Goods not being supplied by the supplier
Risk of law suit being filed by the supplier
Negative goodwill for the company
Loss of early bird discounts

Common points for both Sale and Purchase Cycle
1. There must be timely reconciliation between both supplier &customer via supplier &customer
statements and these statements must be reviewed by responsible official.
2. Supplier & customer information held by the organization is highly confidential& must be taken
care of i.e. every employee in the organization must not have access to such confidential data
including operational managers, line managers, sales staff &junior staff/clerks.
RISK
In case any junior staff gets the access of supplier database than there is a risk of setting up
fictitious suppliers resulting in fraudulent payments
3. There must be authority slabs or limits for the approval of expenditures and all payments made for
such expenditures.
4. There must be a combination of both technical & finance personnel when approving purchase of
capital expenditures. (Relevant to CAPEX cycle)

Capital Expenditure cycle / (CAPEX Cycle)
1. Capital Revenue Expenditure Budget is prepared and approved by Director Finance + the whole
Board of Directors.
2. For every fixed asset purchased, capital expenditure form is prepared and signed by the authorized
personnel. ( _______________________________)
3. Quotation obtained from approved vendor/supplier.
4. Raise formal purchase order (P.O) by procurement department.
5. Goods receipt note (G.R.N) to be made for fixed asset on arrival in the factory.
6. Inspection of fixed asset to be done on arrival.
7. Every fixed asset to be assigned a unique serial number. ( ____________)
8. Fixed Asset to be entered in the fixed Asset Register (Non-current asset register) once serial
number or asset code is assigned.
9. CAPEX budget to be updated after every purchase.
10. Proper capitalization must be done as per company policy as per the criteria of IAS-16.
11. There must be timely reconciliation between physical and recorded fixed assets and any
differences must be investigated and reconciled.
12. There must be adequate safeguards on the physical access of fixed assets. (termed as physical
controls)
13. Not all persons should have access to fixed assets (especially expensive and portable ones)
14. Only authorized personnel should have access to non-current asset register.
15. Only authorized personnel should have access to non-current asset budget.
Student Notings

Student Notings

‘Cash & Bank Cycle’

General controls on Cash & Bank
1. There must be proper & adequate physical control over cash (i.e.) it must be kept in a safe deposit
box/locker or vault (Physical Access Controls)
2. Cash must be timely banked. This depends upon the frequency of cash transactions.
3. Petty cash & Cash book must be upgraded on timely basis.
4. All cash records/ books must be authorized & approved by responsible official.
5. There must be proper segregation of duties on cash & bank handling.
Bank Reconciliation
1. Bank reconciliation should be prepared on timely basis (weekly or monthly)
2. Bank reconciliation must be approved by authorized personal.
3. Bank reconciliation should be reviewed by responsible official irrespective of reconciling amounts/
items or closing balance.
Cash Sales
1. There must be proper recording of cash sales in cash register / journal.
2. There must be adequate physical controls over cash.
3. At the close of business all cash recorded in point of sale terminal should be reconciled with
Physical cash.
4. All employees in the shop/dept. should not have the access to cash till/ cash flow & the point of
sale terminal.
5. Any shortage/excess of cash to be accounted for as per company policy.
6. There must be segregation of duties in complete handling of cash transactions.
7. In case of cash & credit sales from various shops & branches daily records must be transferred to
the head office.
8. Cash that is banked daily should be verified from bank statement along with sales made on credit
via credit cards.
9. Junior staff or unauthorized staff should not have access to cash / cash float or cash till.
10. For staff / employees handling cash till or large amount of cash, controls to be in place to avoid
cash handling of relatives and friends.
11. In the case, company has internal audit dept. then its staff / employees to visit all branches to
verify cash controls and company procedures (SOP)
12. In case of more than one outlet, cash to be reconciled in every outlet rather than in aggregate.
13. There must be proper segregation of duties at the time of cash/cheque receipt. (I.e. one person to
receive the cash and second person to observe its recording).
14. Both petty cashbook and cashbook are 02 separate books and must be maintained independently
and separately.
Internal controls on Cash and Bank payments

1. All payments must be approved by a responsible official/ authorized person.
2. All payments to be processed either by cash vouchers or bank vouchers.
3. All payments must be accompanied by supporting documents.
4. All payments vouchers must be dated & sequentially pre-numbered.
5. There must be proper segregation of duties on cash & bank payments.

Internal Controls on Petty Cash system (VERY IMP)
1. All petty cash vouchers must be approved by an independent person.
2. All petty cash vouchers must have supporting documents (bills &invoices etc.)
3. All petty cash vouchers must be sequentially pre-numbered.
4. All petty cash expenses must be within limit (i.e. no major expense to be made from petty cash).
5. The petty cash limit must be reasonable i.e. it must not exceed the average petty cash monthly
expenses.
6. Regular & surprise cash counts must be conducted independently.
7. All petty cash expenses must be for business purpose only.
8. There must be proper segregation of duties in petty cash cycle.
9. Petty cash book must be updated on timely basis and must be approved by authorized personnel.
10. All petty cash vouchers must be approved by senior official at the time of reimbursement of cash.

Payroll Cycle
1- Hiring process of 7- Preparation of

an organization Monthly Pay slips
2- Training of 8- Disbursement of
employees monthly Salary
(B.O.C)
Via Cash (lower management
staff)
3- Daily Attendance& Via Bank
recording of daily (Admin & Senior Mgmt.) Staff
hours
9- Annual Appraisals
(increments, bonus &
promotions)
4- Recording &
approval of Overtime
hours
10- Notifications of
joiners & leavers
5- Calculation of
during the year
Monthly Salary
6- Approval of
Monthly Salary / General Payroll Points for
Payroll Sheets scenario-based questions

Payroll Cycle
1. Hiring of employees/hiring Process in an Organization
i. Advertisement is given in the newspaper.

ii. Aptitude tests and interviews are conducted.
iii. On final selection of candidate, personal file/H. R file is maintained.
2. Training of new employees
i. Basic orientation / training will be undertaken for new employees about company and its
various department and functions.
3. Daily Attendance and Record of Daily Hours
i. Process of time in /clock in or clock out / time out to record daily hours worked on the basis
of which monthly remuneration will computed by the payroll department, these hours are
recorded by Time Management System (TMS) (employees swipe cards).
Control in this area: This clock in & out process should be supervised either by CCTV
cameras or by responsible official i.e. Physical control.
i. Overtime hours worked on daily monthly basis should be recorded separately by the TMS.
ii. Lunch breaks/dine out breaks to be recorded and must be supervised by the department or
the HR dept.
iii. Attendance system should mark attendance of one person at a time i.e. One person should
not be able to mark attendance more than on time.
(This attendance could be marked either by swapping cards or via Biometrics i.e.
Thumb impression etc.)
Control in this area: CCTV cameras, physical supervision or built in control in the TMS.
4. Recording and Approval of overtime hours

(Overtime hours can be either be encashed or taken as days off)
i. Monthly / weekly overtime hours must be reviewed and approved by immediate supervisor
or manager to ensure only authorized hours are paid for.
ii. Overtime rates / perks must be approved by responsible official.
iii. Monthly salary should incorporate the monthly overtime calculated.
iv. All overtime hours should be authorized by a responsible official prior to being paid by the
payroll department.
RISK:
There is a risk that company would be paying for hours not worked or hours not
approved resulting in excessive payroll cost for the company.
5 & 6. Calculation & Approval of Monthly Salary

i. Payroll system automatically calculates monthly salary at the end of the month, and this
system-based calculation must be re-calculated on sample basis by authorized personnel to
ensure that calculation is correctly and accurately performed by the system.

ii. Monthly salary sheets must be approved by authorized personnel from
PAYROLL department.
RISK
There is a risk that incorrect salary will be processed resulting in demotivation for
the employees. (_________________________________________________)
7. Preparation of monthly salary pay slips

i. Monthly salary pay slips should always be system generated i.e. it must not be hand
written.
ii. Pay slips are very confidential and must not be disclosed to anyone.
8. Disbursement of salaries
Via Cash
i. Cash salaries are the most risky and therefore must be taken care of.
ii. Cash disbursement must be supervised and there must be strong physical control over cash.
Such disbursement must not be made on weekends or late evenings.
iii. Undistributed / unclaimed wages must be kept in a secured location e.g. safe deposit box or
vault room.
Via Bank Transfer – (E Transfer)
i. Bank transfer listing should be authorized by authorized personnel
ii. Salaries paid via bank transfer should be reviewed in detail and agreed to the payroll records
prior to being authorized for bank payments
9. Annual Increments/ Bonus and promotions
i. Annual increments/bonus and promotions must be approved by department head, HR dept
and Board of Directors.
ii. These must be communicated to payroll dept on timely basis and formally
(_________________________________) so that increase in salaries are plus BOD.
10. Notification of joiner and leavers.
i. The detail of joiners and leavers must be documented by H.R and must be timely
communicated to payroll department to ensure correct and accurate calculation of salaries.

General Points on Payroll Cycle
1. There must be segregation of duties between HR & payroll dept.
(It reduces the risk of setting up off fictitious employees and reduces the risk of paying
incorrect salaries).
2. There must be pre-printed forms with HR Dept. for all new employees.
3. All input into the standing data / master records or inputs should be done by senior
personnel or authorized personal.
4. There must be exception reporting in the case of any change in payroll master record.
5. Any hiring in the organization either permanent or contractual staff must be done by H.R
only.
6. Department must not be on leaves at a same time.
7. In case of annual leaves proper delegation must be done to fellow colleagues or subordinates.
8. There must be segregation of duties at all levels with in both H.R & Payroll dept.
9. When approving payroll payments, breakups should be reviewed rather than reviewing total
lump sum amount.
Student Notings

Further important Internal Control weaknesses and

Internal Controls
1. Exceeding annual capital expenditure budgets.

2. Understaffed internal audit department.
3. Sample size of verifying fixed assets is very low/less.
4. All employees can access master / standing data.
5. Payroll Manager has the authority to review and amend payroll records
6. Sales credit limits are not reviewed regularly or periodically.
7. Credit limits should be approved independently.
8. Invoice are being chased long after due dates.
9. There is no credit controller or not being appointed on time.
10. All commercial documents must have minimum 04 copies
11. Flat discount is given to all customers without credit check.
12. Customer statements are not sent on regular basis.
13. Receivable/creditors ledger is not reconciled on timely basis.
14. All commercial documents should be sequentially pre-numbered e.g. Sales Invoice,
GRN & GDN.
15. When distributing the salary, the total of bank transfer list is only compared with the
total of payroll records.
16. In the case of petty cash, petty cash balance maintained must be equal to cash total float
(petty cash balance) & supporting documents/ petty cash vouchers.
17. In the case of more than one cash customer / cash till in an outlet all employees should
not have access to the cash counters (where physical cash is kept & cash sale records are
maintained)
18. Where there is more than one cash counter at an outlet/ restaurant cash must be
reconciled with counter sales records for each counter/ cash till separately so that
discrepancies / exceptions can be noted separated.

Sales Cycles Kay Summarized Points
Internal Controls
1. Credit worthiness to be checked for every customer
2. Credit limits must be reviewed periodically
3. Every customer must have unique customer I.D
4. Credit limit to be approved by sales director / credit controller / independent credit agency /
authorized person
5. Junior clerks / staff not to approve credit limits
6. Junior clerks / staff not to approve sales discounts
7. Junior clerks / staff not to have access of master data
8. Junior staff / operational staff must only access or insert data in master records under the
supervision of senior staff / approved person.
9. Sales quotation must be approved
10. Online ordering system must be linked with the inventory system
11. Sales discounts given must be approved as per SOP of the company
(Rem! Segregation of duties)
12. Sales order must be documented, sequentially pre-numbered and must have minimum 4 copies.
13. Inventory levels must be checked at the time of making sales order ( either manual or via
telephone calls )
14. Sales order must be timely communicated to dispatch department / stores / warehouse
(as the case may be)
15. Daily pick list must be prepared by dispatch department / warehouse / stores dept
16. When goods are being dispatched, packing list must be prepared and must be compared with
customer purchase order, sales order and daily pick list.
17. GDN must be made at the time of goods being and it should be sequentially pre-numbered and
must be approved.
18. GDN's to be filed in the ware house as well as sent to finance department on timely basis so that
sales invoice can be raised on timely basis.
19. Delivery notes must be signed by the customers on dispatch of goods.(acknowledgement)
20. Sales invoice must be sequentially pre-numbered and must be approved by responsible official.
21. Sales Invoice must be dispatched to customers on a timely basis.
22. Invoice must be prepared either by the sales dept. OR finance dept. as the case may be. (as per
SOP of the company)
23. Sale dept shouldn't be involved in the recovery of receivables OR chase receivables
24. Communication within sales department should be formal i.e via internal memorandum or other
formal document.
25. All documents prepared must be approved and sequentially pre-numbered.
26. There must be timely reconciliation of receivable balance with the customer records via customer
statements and these must be reviewed by responsible official.
27. Customer information held by the organization is highly confidential i.e. every employee in
the organization must not have access to such confidential data including operational
managers, line managers, sales staff &junior staff/clerks.
28. There must be segregation of duties at all levels

Purchase Cycle Kay Summarized Points
Internal Controls
1. Material requisition (M.R)/ purchase requisition (P.R) to be made for ALL purchases
2. M.R / P.R must be sequentially pre-numbered and approved by responsible person / authorized
personnel.
3. Quotations to be obtained from approved vendors only.
4. Vendor / supplier list should be updated on timely basis (say annually)
5. When updating vendor list, input to be taken from all department heads including head of
procurement / purchase.
6. When selecting vendors, various factors must be considered other than cost i.e. Quality, delivery
time and after sales service (i.e. Value for money must be achieved)
7. Purchase orders must be made for all purchases irrespective of the amount.
8. Purchase orders must be approved as per the expenditure limits / authority slabs
9. Purchase orders must be sequentially pre-numbered.
10. There must be minimum 4 copies of P.Os
11. Good must be inspected on arrival for quality and quantity.
12. GRNs must be made for all goods received.
13. GRNs must be sequentially pre-numbered and must be approved by authorized person /
responsible official.
14. GRNs must be reconciled with purchase order and delivery challan (document of transportation).
15. Minimum 4 copies of GRNs must be maintained and copy to finance department must be send
on a timely basis.
16. Supplier invoice must be reconciled with P.O, GRN and delivery challan
17. Liability to be recorded on the basis of GRN and not on the basis of supplier invoice.
18. Junior clerks / junior staff / operational staff must not have access of supplier / vendor master
data / confidential information of supplier.
19. There must be timely reconciliation of supplier balance (our company balance) via supplier
statements and these statements must be reviewed by responsible official.
20. There must be a combination of operational, technical & finance staff /personnel (as per the
authority slab) when approving purchase order for capital expenditure items. (Relevant to
CAPEX cycle)

Payroll Cycle Kay Summarized Points
Internal Controls
1. Basic orientation / training to be given to employees on joining the organization.

2. There must be segregation of duties between HR & payroll dept.
3. Any hiring in the organization either permanent or contractual staff must be done by
H.R only.
4. There must be pre-printed forms with HR Dept. for all new employees.
5. All input into the payroll standing data / payroll master records should be done by
senior personnel or authorized personal only.
6. The payroll system should be password protected and authorized person should change
the password periodically.
7. If inputs is done by junior staff / employee than this process must be observed by
senior personnel / responsible official.
8. There must be exception reporting in the case of any change in payroll master records.
9. Daily hours worked must recorded via time in /clock in or clock out / time out process
via Time Management System (TMS) (employees swipe cards) and this process is
monitored either manually or via cameras (CCTV cameras)
10. Input of daily hours by employees can be recorded via Swipe wards, numeric key
pads or biometrics.
11. All staff members are issued with sequentially pre-numbered key cards.
12. Attendance system should mark attendance of one person at a time i.e. One person
should not be able to mark attendance more than on time.
13. Employee overtime hours worked on daily / monthly basis should be recorded
separately by the TMS.
14. ALL overtime hours worked should be authorized by a responsible official prior to
being paid by the payroll department.
(ideally overtime hours must be approved at month end before the monthly salary is
disbursed)
15. Overtime perks / benefits must be approved by responsible official.
16. System-based payroll calculation (accounting software) must be re-calculated on
sample basis by authorized personnel to ensure that system calculation is correct and
accurately performed by the system.
17. Monthly payroll salary sheets must be approved by authorized personnel /
responsible official from PAYROLL department.
18. Every month payroll control account reconciliation should be done with the posting
in GL, TB and financial statements.
19. Tax payable must be calculated by a staff member and approved by responsible
official (CFO or FD)
20. When approving payroll payments, breakups should be reviewed rather than
reviewing total lump sum amount.
21. Lunch breaks /dine out breaks OR any other breaks should be recorded /
documented and must be monitored by department head as well as HR dept.
22. Monthly salary pay slips should always be system generated i.e. it must not be hand
written.
23. Cash salaries are the most risky therefore cash disbursement must be supervised by
responsible official and there must be strong physical controls over cash. ( cash must
be kept in safe deposit box / vault room / cash drawer)

24. Cash salary must be disbursed on the basis of proof of identification / signature.
(must be supervised by responsible official)
25. Cash salary disbursement must not be made on weekends or late evenings
26. Undistributed /unclaimed wages must be kept in a safe and secured location e.g. safe deposit box
or vault room.
27. Salaries paid via bank transfer should be reviewed in detail and agreed to the
payroll records prior to being paid.
28. Preparation of payroll bank transfer list and approval for payroll payment must be
done by separate personnel.
29. Preparation of bank transfer list and any subsequent editing in this list should be done
by separate personnel.
30. Annual increments / bonus and promotions must be approved by department head,
HR dept. and subsequently Board of Directors. (segregation of Duties)
31. BONUS and increment policy must be approved by both HR and B.O.D
32. Approved bonus / increments must be formally communicated to payroll
department.
33. The above must be communicated to payroll department on a timely basis as well as
communicated formally so that salaries are calculated correctly.
34. The details of joiners and leavers must be documented by H.R and must be timely
communicated to payroll department to ensure correct and accurate calculation of
salaries.
35. Annual leaves / holidays must be approved via holiday forms / annual leave forms by immediate supervisor
/ department head and the employee must be notified as to the number of holidays approved.
36. In case of annual leaves proper delegation must be done to fellow colleagues or subordinates.
Payroll Extra Points

Internal controls on Inventory counting Process (for TOC

Question)
Please read again and again!
1. Ideally there should be no movement (stock in and stock out) during the stock count.
(Neither within the warehouse nor from one warehouse to another warehouse)
2. Inventory racks / shelves should be properly arranged and tagged.
3. Physical access controls on inventory.
4. Inventory counting must be supervised independently
(Other than the warehouse department)
5. Inventory counting must be performed by independent staff of the company.
(Other than the Warehouse staff and employees)
6. Sequentially pre-numbered inventory count sheets must be used during the count.
7. All inventory sheets must be signed by the respective counter (external auditor or
independent stock counter).
8. All slow moving/obsolete stock must be clearly identified during the stock count and
provision (for obsolete stock) to be made according after discussion with management and
these items must be separately marked.
9. No quantity (volume) must be mentioned on the inventory count sheets.
10. Counting must be in pairs (2 people). One for counting and second for recording &
observing.
11. The role of the respective counters must be clarified before the count starts (i.e one person
should count the stock and the other person should observe the process)
12. Inventory count sheets must not be discarded (thrown away) after the stock count rather
they should be retained accordingly to ha````````````ve an audit trail.
13. Inventory counting must be done in a systematic & sequential order so that completeness
of the warehouse / stores can be assured.
14. Bin cards must be signed off by the respective counter. (External Auditor or Client staff).
15. Any additional papers/count sheets must be sequentially pre-numbered and signed-off by
the respective counter.
16. All differences during the stock count (diff btw Book records & physical stock) must be
noted & reconciled after the counting.
17. Expert services (Independent Expert) are recommended for verifying the existence &
valuation of W.I.P as well as specialized raw material. (that requires special technique)
18. Internal Auditors should be involved in supervising the internal controls during the stock
counting process rather than counting the stock itself.
19. Damaged stock / slow moving stock to be clearly identified during the stock count and
brought to a central location / separate place during the audit.
20. Only authorized individuals from the finance dept. to adjust the inventory records in the
accounting records (either provision or write off of inventory)
21. Inventory counting to be done from inventory count sheet to floor and floor to count
sheet.
22. During the stock count, pencil should not be used so that audit trail from the stock count
sheets cannot be removed.

23. The inventory counting done by supervisor himself must be reasonable & justifiable in the
context of inventory taken as a whole.
24. In case there is inventory of 3rd party in the warehouse, such inventory must be properly
segregated otherwise 3rd party stock will become part of our audit client’s stock.
25. In the case of expensive & portable stock, all staff members must not have access of the
same otherwise risk of theft & misappropriation of stock will increase.
26. In the case of inventory bay it must be recounted by another staff of counters to ensure
accuracy and completeness.
27. In case of shortage of staff during the stock count, if external staff (temporary staff) is hired
than there is a risk that inventory will not be counted accurately & risk of theft
(misappropriation) will increase.

Constructing T.O. C’s from Controls ………. (Few Examples)
(For my ACCA F8 Cheetahs) 
Controls Test of Controls

1. Purchase Orders are made and approved by Inspect a sample of purchase orders made & also
responsible official. review proper approval by authorized personnel.
2. Cash vouchers are approved by responsible Inspect a sample of cash vouchers to verify the
official. approvals.
3. Credit limits are set by senior member of the For a sample of customers review that the
sales team. authorization is given by authorized personnel.
4. Supplier statement reconciliation should be Inspect the file of reconciliation to ensure that they
performed on monthly basis. are performed on a regular basis.
5. Credit limit is set for all customers by Enter a sales order which will take the order, above
Authorized Personnel. the agreed limit, the system must reject the order.
6. Every customer has a unique account number. We will enter fake customer Id’s and the system
must reject it.
7. Customers are entitled to discount which are Enter discount in the case of customer normally not
approved by respective authorized personnel. entitled to a discount, the system must reject the
order or should not accept the discount.
8. The website must be integrated with the We will enter a dummy product/dummy data/test
inventory system of the company. data and check the system which must indicate or
show that the item is out of stock plus also inform
its next availability.
9. Goods are inspected on arrival. Observe inspection process on arrival of goods.
10. All purchase invoices are compared with Review such comparisons made and also verify
G.R.Ns before approval of payment. approvals by inspecting the documents.
11. There is adequate segregation of duties btw Review the job descriptions of payroll and H.R to
H.R and Payroll dept. confirm the split of responsibilities between them.
12. On monthly basis exception reports are Select a sample of exception reports and review for
produced in case of any changes to standing evidence of review done by authorized personnel.
data / master records and such reports are (by looking at his signatures)
reviewed by the payroll director.
13. Salary pay packets are prepared by 02 Observe the preparation of the pay packets ensuring
members of the staff – one prepares the packet that 02 members of the staff are involved and also
and the other checks the pay packets. are checked for accuracy.
14. Segregation of Duties in any given process Review the job descriptions (J.D) and
Discuss with members of the Dept to inquire about
their responsibilities or J.D
15. Documents are made e.g. Pre numbered Select a sample of documents OR
invoice or purchase Order or Gate pass or pre- Review/ verify / inspect the documents on sample
printed forms or Overtime sheets or goods basis and verify approval by authorized person and
received note that the document is sequentially pre-numbered.

16. Data is input by the person into master records Make a person input into system not authorized to
/ accounting software. do and observe the response of the system (system
must reject it) or
In case a person posts / inputs under the

supervision of a senior official than observe the
process to ensure control is being followed and
adhered to.
17. Document is authorized by responsible official Select a sample of documents and review the
/ authorized person. evidence for authorization e.g. Signature of
authorized person on the doc.
18. In case of an automated system Insert Test data / Dummy data and verify the
i.e Time clock card or attendance system or results with predetermined results.
Bar code reader
19. In case of any instructions given Inspect the document or review the document to
verify the instructions given
20. In case of any calculations being done e.g. Recalculate OR verify a sample of calculations for
Sales discount or Wages calculation OR evidence that they are correctly calculated
Totaling of sales invoices
21. In case the control is reflected by an email Review a sample of emails done or received to
from one dept to another or an email from one verify responses
person to another within department
22. In case systems are integrated e.g Online Insert test data / dummy data to review the
ordering system with inventory system response of the system with pre-determined results
and corrective actions to be communicated.
23. In case any reconciliations are performed e.g. Review / verify / inspect reconciliations on a
stock reconciliation, bank reconciliation and sample basis to ensure they are properly made and
are approved by responsible person. also obtain evidence of approval by review of
signatures of authorized personnel / responsible
official.

Student Notings

Questions Other than Manual
S. No. Question Attempt Marks

1 Shiny Happy Windows June 2010 20 marks
2 Matalas Co Dec 2007 12 marks
3 South Lea Co ------------------ 8 marks
4 Letham Co Dec 2009 16 marks

ACCA June 2010 (20 marks)
Shiny Happy Windows Co

a. (i) Define a 'test of control' and a 'substantive procedure (2 marks)
(ii) State ONE test of control and ONE substantive procedure in relation to sales invoicing.
(2 marks)
b. Shiny Happy Windows Co (SHW) is a window cleaning company. Customers' windows are cleaned
monthly, the window cleaner then posts a stamped addressed envelope for payment through the
customer's front door. SHW has a large number of receivable balances and these customers pay by
cheque or cash, which is received in the stamped addressed envelopes in the post. The following
procedures are applied to the cash received cycle:
1. A junior clerk from the accounts department opens the post and if any cheques or cash have been
sent, she records the receipts in the cash received log and then places all the monies into the
locked small cash box.
2. The contents of the cash box are counted each day and every few days these sums are banked by
whichever member of the finance team is available.
3. The cashier records the details of the cash received log into the cash receipts day book and also
updates the sales ledger.
4. Usually on a monthly basis the cashier performs a bank reconciliation, which he then files, if he
misses a month then he catches this up in the following month's reconciliation.
Required:
For the cash cycle of SHW:
(i) Identify and explain THREE deficiencies in the system; (3 marks)
(ii) Suggest controls to address each of these deficiencies; and (3 marks)
(iii) List tests of controls the auditor of SHW would perform to assess if the controls are operating
effectively. (3 marks)
c. Describe substantive procedures an auditor would perform in verifying a company's bank balance.
(7 marks)
(20 marks)

Answer:
a. (i) Tests of control test the operating effectiveness of controls in preventing, detecting or correcting
material misstatements.
Substantive procedures are aimed at detecting material misstatements at the assertion level. They
include tests of detail of transactions, balances, disclosures and substantive analytical procedures.
(ii) Example tests of control over sales invoicing

 Inspect numerical sequence of sales invoices, if any breaks in the sequence noted, enquire of
management as to missing invoices.
 Review a sample of sales invoices for evidence of authorisation by a responsible official of any
discounts allowed.
 Inspect customer statements for evidence of regular preparation.
(iii) Example substantive procedures over sales invoicing
 Select a sample of pre and post year end goods despatch notes and follow through to pre or
post year end sales invoices, to ensure the sales cut-off has been correctly applied.
 Perform an analytical review of monthly sales, compare any trends to prior years and discuss
significant fluctuations with management.
 Review post year end credit notes to identify if any pre year end sales should be removed.
b.
Deficiencies Control Test of Control
A junior clerk opens the post A second member of the A responsible individual should
unsupervised. This could result accounts team should assist then review them.
in cash being misappropriated. with the mail, one should open Test of Control Observe the mail
the post and the second should opening process, to assess if the
record cash received in the control is operating effectively.
cash log.
Cash and cheques are secured Cash and cheques should be Enquire of management where the
in a small locked box and only ideally banked daily, if not cash receipts not banked are
banked every few days. A then it should be stored in a fire stored. Inspect the location to
small locked box is not proof safe, and access to this ensure cash is suitably secure.
adequate for security of safe should be restricted to
considerable cash supervised individuals.
receipts, as it can easily be
stolen.
Cash and cheques are only Cash and cheques should be Inspect the paying-in-books to see
banked every few days and any banked every day. if cash and cheques have been
member of the finance team banked daily or less frequently.
performs this.
Review bank statements against
the cash received log to confirm
all amounts were banked
promptly.
Cash should ideally not be held The cashier should prepare the Enquire of staff as to who
over-night as it is not secure. paying-in-book from the cash performs the banking process and
Also if any member of the received log. Then a separate confirm this person is suitably
team banks cash, then this responsible individual should responsible.
could result in very junior have responsibility for banking

clerks having access to this cash.
significant amounts of money.
The cashier updates both the The cashier should update the Observe the process for recording
cash book and the sales ledger. cash book from the cash cash received into the relevant
This is weak segregation of received log. ledgers and note if the segregation
duties, as the cashier could of duties
incorrectly enter a receipt and A member of the sales ledger is occurring.
this would impact both the team should update the sales
cash book and the sales ledger. ledger
In addition weak segregation of

duties could increase the risk of
a 'teeming
Bank reconciliations are not Bank reconciliations should be Review the file of reconciliations
performed every month and performed monthly. A for evidence of regular
they do not appear to be responsible individual should performance and review by senior
reviewed by a senior member then review them. finance team members.
of the finance department.
Errors in the cash cycle may
not be promptly identified if
reconciliations are perform
infrequently
c. Substantive procedures over bank balance:

 Obtain the company's bank reconciliation and check the additions to ensure arithmetical
accuracy.
 Obtain a bank confirmation letter from the company's bankers.
 Verify the balance per the bank statement to an original year end bank statement and also to the
bank confirmation letter.
 Verify the reconciliation's balance per the cash book to the year end cash book.
 Trace all of the outstanding lodgments to the pre year end cash book, post year end bank
statement and also to paying-in-book pre year end.
 Examine any old unpresented cheques to assess if they need to be written back into the
purchase ledger as they are no longer valid to be presented.
 Trace all unpresented cheques through to a pre year end cash book and post year end statement.
For any unusual amounts or significant delays obtain explanations from management.
 Agree all balances listed on the bank confirmation letter to the company's bank reconciliations
or the trial balance to ensure completeness of bank balances.
 Review the cash book and bank statements for any unusual items or large transfers around the
year end, as this could be evidence of window dressing.
 Examine the bank confirmation letter for details of any security provided by the company or
any legal right of set-off as this may require disclosure.
___________________________________________________________

ACCA Dec 2007 (12 marks)
Matalas Co
Matalas Co sells cars, car parts and petrol from 25 different locations in one country. Each branch has
up to 20 staff working there, although most of the accounting systems are designed and implemented
from the company’s head office. All accounting systems, apart from petty cash, are computerised, with
the internal audit department frequently advising and implementing controls within those systems.
You are an audit manager in the internal audit department of Matalas. You are currently auditing the
petty cash systems at the different branches. Your initial systems notes on petty cash contain the
following information:
1. The average petty cash balance at each branch is $5,000.

2. Average monthly expenditure is $1,538, with amounts ranging from $1 to $500.
3. Petty cash is kept in a lockable box on a bookcase in the accounts office.
4. Vouchers for expenditure are signed by the person incurring that expenditure to confirm they have
received re-imbursement from petty cash.
5. Vouchers are recorded in the petty cash book by the accounts clerk; each voucher records the date,
reason for the expenditure, amount of expenditure and person incurring that expenditure.
6. Petty cash is counted every month by the accounts clerk, who is in charge of the cash. The petty
cash balance is then reimbursed using the ‘imprest’ system and the journal entry produced to record
expenditure in the general ledger.
7. The cheque to reimburse petty cash is signed by the accountant at the branch at the same time as
the journal entry to the general ledger is reviewed.
Required:
b) Explain the internal control weaknesses in the petty cash system at Matalas Co. For each
weakness, recommend a control to overcome that weakness. (12 marks)

Answer:
b. Deficiency Control
The amount of cash held in the petty cash The amount of the petty cash balance at each
box is high ($5,000) in comparison to the branch should be reviewed. Based on an average
average monthly expenditure of ($1,538). monthly expense of $1,538, a balance of 52,000
This increases the risk that the cash will be would seem reasonable.
stolen or that errors will be made in counting.
The petty cash box is not physically secure as The petty cash box should be kept In the branch
it Is kept on a bookcase in the accounts office. safe or in a locked drawer in the accountants
This increases the risk of theft. desk.
Reimbursement for petty cash expenditure All petty cash claims should be supported by a
takes place without evidence of the receipt.
expenditure being incurred eg receipt. This
may result in false claims being made.
The petty cash vouchers are not authorised — All petty cash vouchers should be authorised by
they are only signed by the individual the accounts clerk.
claiming reimbursement.
In some instances significant items are Expenditure over a certain limit (eg $50) should
purchased through petty cash (up to $500). be authorised in advance.
These are not authorised prior to the
purchase being made. This could result in
unnecessary expense being incurred by the
business.
There is no indication that the vouchers are Petty cash vouchers should be pre-numbered.
pre- numbered, meaning that the branch On entry into the petty cash book the sequential
cannot confirm completeness of the vouchers. numbering should be checked to ensure that all
Unauthorised claims could be made and then expenditure has been completely recorded
blamed on missing vouchers.
There is a lack of segregation of duties. The The accountant should check the petty cash
petty cash is counted by the accounts clerk count to confirm the accuracy of the balance and
who is also responsible for the cash balance. ensure that the asset is safeguarded.
There is no additional independent check on
the petty cash balance.
Whilst the accountant confirms that the The petty cash vouchers should be reviewed by
cheque to reimburse petty cash agrees to the the accountant to confirm that the monthly petty
journal entry to the general ledger, the petty cash expenditure agrees to the reimbursement
cash vouchers are not cheque
--------------------------------------------------------------------------------------------------

SouthLea Co
SouthLea Co is a construction company (building houses, offices and hotels) employing a large
number of workers on various construction sites. The internal audit department of SouthLea Co is
currently reviewing cash wages systems within the company.
The following information is available concerning the wages systems:
1. Hours worked are recorded using a clocking in/out system. On arriving for work and at the end of
each days work, each worker enters their unique employee number on a keypad.
2. Workers on each site are controlled by a foreman. The foreman has a record of all employee
numbers and can issue temporary numbers for new employees.
3. Any overtime is calculated by the computerised wages system and added to the standard pay.
4. The two staff in the wages department make amendments to the computerised wages system in
respect of employee holidays, illness, as well as setting up and maintaining all employee records.
5. The computerised wages system calculates deductions from gross pay, such as employee taxes,
and net pay. Finally a list of net cash payments for each employee is produced.
6. Cash is delivered to the wages office by secure courier.
7. The two staff place cash into wages packets for each employee along with a handwritten note of
gross pay, deductions and net pay. The packets are given to the foreman for distribution to the
individual employees.
Required:
(i) Identify and explain weaknesses in SouthLea Co’s system of internal control over the wages system
that could lead to mis-statements in the financial statements.
(ii) For each weakness, suggest an internal control to overcome that weakness. (8 marks)

Answer:
(a)Wages system — deficiencies and recommended controls
(i) Deficiency (ii) Internal control recommendation

The foreman is in a position to set up The Issue of new employee numbers should be
fictitious employees onto the wages system as authorised by a manager and supported by employee
he has authority to issue temporary employee contract letters etc.
numbers. This would allow him to collect
cash wages for such bogus employees.
The two wages clerks are responsible for the The list of personnel should be matched with the
set up and maintenance of all employee payroll by a manager and all new employee records
records. They could therefore, in collusion, set should be authorised before being set up on the
up bogus employees and collect cash wages system.
from them.
The wages clerks are responsible for making Any amendments to standing data on the wages
amendments to holidays and illness etc. They system should be done by an authorised manager so
could make unauthorised amendments which that unauthorised amendments are not made. A log
affect individual staff members' pay. of amendments should be regularly reviewed.
The computer system calculates gross pay and A payslip should be generated by the computer
any deductions but these are hand-written by system and including in the wage packet to reduce
the wages clerks for the staff pay packets, so the chance of errors in deductions and gross pay
errors could be made and incorrect wages being made.
issued.
The computer automatically calculates gross One of the wages clerks should check the gross pay
pay and deductions, however there is no and deductions for a sample of employees to gain
check to ensure the calculations are accurate.
assurance that the computer is calculating amounts
correctly.
The foreman distributes cash wages to the The distribution of wages should be overseen by
employees. He could therefore misappropriate another manager. Any unclaimed wages should be
any wages not claimed. noted on a form and returned to the wages
department.
__________________________________________________________________________________


Letham Co
Letham Co is a large engineering company with ten manufacturing units throughout the country in
which it is located. The manufacturing process is capital intensive and the company holds a wide
variety of plant and equipment.
The finance director is responsible for the preparation of a detailed non-current assets budget annually,
which is based on a five-year budget approved by the whole board of directors after consultation with
the audit committee. This annual budget, which is also approved by the full board, is held on
computer file and is the authority for the issue of a purchase order.
When the item of plant and equipment is delivered to the company, a pre-numbered goods received
note (GRN) is prepared, a copy of which is sent to the accounting department, and used to update the
non-current assets budget to reflect the movement. The equipment is carefully inspected by production
personnel and tested for proper operation.
An operational certificate is prepared by the production department and this is used by the accounting
department, together with the GRN, to check against the purchase invoice when it is received.
At the same time as the purchase invoice enters the purchasing system, a computerised non-current
assets register is updated. Access to the non-current assets register is restricted to personnel in the
accounting department. On a rolling basis throughout the year the non-current assets register is
compared to plant and equipment on site by accounting department personnel, using identification
numbers in the register and permanently marked onto each item in the factory.
The internal audit department also tests on a sample basis the operation of the system from budget
preparation to entry in the non-current assets register. Internal audit staff also compare a sample of
entries in the non-current assets register with equipment on the shop floor.
Required:
SIX STRENGTHS in Letham’s control environment in respect of non-current assets and explain why
they may reduce control risk. (12 marks)
As part of your work as external auditor you are reviewing the non-current assets audit programme of
the internal auditors and notice that the basis of their testing is a representative sample of purchase
invoices. They use this to test entries hi the non-current assets register and the updating movements on
the annual budget.
Required:
Explain why this is not a good test for completeness;
State a more appropriate test to prove completeness of the non-current assets records, including the
non-current assets register. (4 marks)

Answer:
b) Strong points in the control environment of Letham Co in respect of non-current assets are set
out below, together with explanations as to their impact on control risk:
Strengths Impact on control risk
Approval of the five-year and annual budgets by The annual budget is the ‘trigger’ for placing
the board of directors. equipment. orders for equipment. Its approval by the board
will ensure that only authorised non-current assets
are purchased.
The budget is updated when the order for new The company can use the updated budget at any
equipment is placed. time to anticipate cash outflows. it will also ensure
that there is no duplication of assets purchased
Pre-numbered goods received notes and Only goods that have been received and are
operational certificates are available to the operating effectively will be paid for
accounting department for comparison with the
purchase invoice.
Informed people in the production department This will help to ensure the operational
carefully assess the proper operation of the effectiveness of plant and equipment.
equipment.
The accounting department, independent of the The potential for fraudulent entries to cover
production facility, updates the non-tangible theft/unauthorised purchases will be reduced and
register and only the accounting department has the non-current assets register, an important non-
access to it. current control document, cannot be manipulated
by the people who hold the assets
Accounting department personnel, independent The risk of theft and loss of plant and equipment is
of production, perform rolling tests to ensure that reduced and the likelihood that all items in the
the non-current assets register and non-current register existing increased
assets on hand are in agreement with each other.
The internal audit department tests on a sample The internal auditing department will be more
basis that recorded non-current assets are in independent than the accounting department and
existence, but see (c) below. hence will provide further comfort that the non-
current assets register is not overstated.
Internal audit test the operation of the entire Any controls which are not operating effectively
non-current assets recording system. (tutorial are likely to be identified and rectified before
note: marks would also be available for significant errors can occur
additional strengths:
 Pre-numbered goods received notes used to

update the budget
 permanent identification numbers recorded
on assets
 purchase invoice automatically updates the
non-current assets register.
c. i. Great care must be taken in selecting the starting point for audit testing. The test that the internal
auditors performed, namely, selecting a representative sample of purchase invoices for testing to the
non-current assets register and to the updating movements on the annual budget, proves merely that
register and budget are in agreement with the purchase invoices issued. It is therefore not a good test to
prove the completeness of purchase invoices and therefore of the entries in the register and budget. In

addition, the purchase invoices are issued by many different suppliers and there is no common serial
number to enable the company to ensure that all purchases are accounted for.
ii. A more appropriate test would be to make the selection from goods received notes (GRNs), as the issue
of a GRN is normally the point at which liability is accepted and is in any event the document used to
update the non-current assets budget. In other words, it is important to identify your audit objective and
then to decide on what sample will be the most appropriate to aid you in meeting that objective. The
GRNs would be traced to the recorded purchase invoices to ensure that the latter were complete and
then to the entries in the non-current assets register and to the updating entries in the budget to ensure
that these too were complete.
An additional appropriate test would be to select a sample of plant and equipment visible on the shop
floor and trace them to the non-current assets register to identify whether they have been:
 included in the register
 noted against the budget as purchased
 paid (or by tracing purchase invoice through to payment.
(Tutorial note: The auditor would of course wish to prove that the GRNs are complete and might select
a sample of purchase orders and trace them to the GRNs to ensure GRNs have been prepared in each
case or the order rejected for good reason. Another appropriate test on the GRNs would be to prove that
the numbering sequence was complete. This list is not exhaustive and other completeness procedures
may be appropriate.)

Student Notings

Student Notings

Something Extra on Cash & Bank Cycle

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ACCA F8 - Audit & Assurance

Page 1 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

ACCA F8 TOC Practice Questions

S. No. Questions Attempts Marks

1 Pear International Co Jun-2012 15 marks

2 Oregano Co Dec-2013 14 marks

3 Fox Industries Co Jun-2013 14 marks

4 Amberjack Co Sept / Dec 2019 20 marks

5 Swift Co Sept / Dec 2020 20 marks

6 Halley & Co Sept / Dec 2017 15 marks

7 Rocky Co March / July 2020 16 marks

8 Blair & Co Dec-2011 12 marks

9 Apple & Co Mar / June 2021 30 marks

10 Lily Window Glass (Co) Dec-2012 12 marks

11 Pomeranian Co Sept / Dec 2021 16 marks

12 Scarlet & Co Sept / Dec 2015 17 marks

13 Hessonite & Co Mar / June 2016 15 marks

14 Raspberry Co Mar / June 2018 20 marks

Page 2 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

S. No. Index of Test of controls

2. Expected questions on T.O.Cs

3. General Internal control weaknesses

6. Cash & Bank Cycle

8. Further important Internal Control weaknesses and Internal Controls

9. Sales Cycles Kay Summarized Points

10. Purchase Cycle Kay Summarized Points

11. Payroll Cycle Kay Summarized Points

12. Internal Controls on Inventory Counting Process (For TOC Questions)

13 Constructing T.O.C’s from Controls ………. (Few Examples)

14. Further ACCA F8 Questions

Page 3 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

Page 4 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

(For MY ACCA F8 Cheetahs to start with…  )

Page 5 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

Sales cycle / system

Every customer has a

Credit terms &

Credit limit & terms must

Via online SALES ordering Credit worthiness of customer

Manual Quotation by sales staff Refuse the

Page 6 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

Sales department to inform This intimation to

Delivery Note (D.N) is signed It's an acknowledgement that the

Sales invoice must be

Page 7 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

Page 8 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

Purchase cycle / system

Material Requisition (MR) Request from user department

1) Quotation to be obtained from No

Match supplier / Purchase Invoice Reconcile these documents

Payment to be made to supplier by

Page 9 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

3. Purchase order should not be approved by junior clerks/ staff.

5. Supplier list should be updated annually and approved by senior personnel.

Common points for both Purchase and Payment Cycle

Page 10 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

Page 11 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)

Page 12 of 44 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)