ACCA Applied Knowledge · Business and Technology · Internal controls
A retailer's internal auditors test a sample of purchase invoices each quarter to check that they were approved by an authorised manager before payment. What type of monitoring is this?
This is compliance testing, because the auditors are checking on a sample whether the approval control actually operated as designed. Substantive testing examines the monetary balances themselves, and a cost-benefit analysis would assess whether the control is worth its cost, neither of which is being performed here.
- ACompliance testing of whether a control operated as intendedCorrect
- BSubstantive testing of the final balances in the financial statements
- CA cost-benefit analysis of whether the control should be retained
Explanation
Checking that approval took place on sampled invoices tests whether a control was applied, which is compliance (controls) testing. Substantive testing looks at the amounts and balances themselves. Cost-benefit analysis would weigh the cost of a control against its benefit, which is not what is being done here.
Did you get it right without looking?
One question tells you little. A timed set on Internal controls shows your real accuracy, how long you take and where you lose marks.
More Internal controls questions
- Dalton plc has strong written procedures, authorisation limits and segregation of duties. Despite this, two senior employees agree together …
- After a ransomware attack corrupted its sales ledger, a retailer restored the data from the previous night's offsite backup. Which statement…
- Which of the following best describes the main purpose of an internal audit function reviewing a company's internal controls?
- A company wants to ensure that its accounting system keeps a record of which user posted or changed each transaction and when. Which feature…
- Which of the following best describes the main purpose of an internal audit function within a company?
- Marlow Co is deciding whether to set up its own internal audit department or outsource the function to an accountancy firm. Which of the fol…