ACCA AA

Audit and Assurance

Control Activities

Kindly note that the content’s of this lecture support note is taken from BPP text
book. The purpose of this note is to provide my students with summary to
understand the control activities properly and it is not meant for any kind of
commercial purpose.

Alan Biju Palak

ACCA AA Control activities

Sales system
• Sales are only recorded if there is an approved sales order form and shipping/
despatch documentation.

• The tasks of taking orders, recording sales and receiving payment are allocated to
three different staff members.

• Accounting for numerical sequences of invoices.

• Monthly customer statements sent out and customer queries and complaints
handled independently.

• Authorisation of credit terms to customers (senior staff authorisation, references/

credit checks for new customers, regular review of credit limits).

• Authorisation by senior staff required for changes in other customer data such as
address etc.

Lecture support notes by Alan Biju Palak

• Orders not accepted unless credit limits reviewed first.

• Authorised price lists and specified terms of trade in place.

• Shipping/despatch documentation is matched to sales invoices.

• Sales invoices are reconciled to the daily sales report.

• An open-order file is maintained and reviewed regularly.
• Sales invoices and matching documents required for all entries and the date and

reference of the entry are written on each document.

• All shipping documentation is forwarded to the invoicing section on a daily basis.

• Daily invoicing of goods shipped.

• Chart of accounts (COA) in place and is regularly reviewed for appropriateness
and updated where necessary.
• Codes in place for different types of products or services.



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ACCA AA Control activities

Purchase system
• Authorisation procedures and policies in place for ordering goods and services.

• The responsibility for placing the orders, recording the purchase order and making
the payment is carried out by three different staff members.

• Purchase orders raised for each purchase and authorised by appropriate senior
personnel.

• Approved purchase order for each receipt of goods.

• Staff receiving goods check them to the purchase order.

• Stores clerks sign for goods received.

• Supplier statements independently reviewed and reconciled to trade payable records.

• Purchase orders and GRNs are matched with the suppliers' invoices.

Lecture support notes by Alan Biju Palak

• Periodic accounting for pre-numbered GRNs and purchase orders.

• Independent check of amount recorded in the purchase journal.

• Mathematical accuracy of the supplier's invoice is verified.

• Amount posted to general ledger is reconciled to the purchases ledger.

• Chart of accounts in place.

• All goods received reports forwarded to accounts payable department daily.

• Procedures in place that require recording of purchases as soon as possible after

goods/services received. 


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ACCA AA Control activities

The inventory system

• Pre-numbered documentation such as GDNs and GRNs in use.
• Reconciliations of inventory records with general ledger.
• Separate responsibilities for maintenance of records and custodianship.
• Physical safeguards in place to ensure inventory is not stolen.
• Reconciliations of accounting records with physical inventory.
• Procedures in place to include inventory held at third parties and exclude
inventory held on consignment for third parties.
• Periodic or annual comparison of inventory with amounts shown in continuous
(perpetual) inventory records.
• Standard costs reviewed by management.
• Review of cost accumulation and variance reports.

Lecture support notes by Alan Biju Palak

• Inventory managers review inventory regularly to identify slow-moving, obsolete
and excess inventory.
• All despatch documents processed daily to record the despatch of finished goods.
• All goods inward reports processed daily to record the receipt of inventory.
• Reconciliations of inventory records with general ledger.
• Orders for materials and production data forms used to process goods through
manufacturing.
• Approval by Finance Director.

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ACCA AA Control activities

The bank and cash system

Cash payments
• Separate responsibilities for the recording, payment and reconciliation of cash.

• Supplier statements independently reviewed and reconciled to trade payable

records.

• Monthly bank reconciliations prepared and reviewed.

• Only authorised staff can make electronic cash payments and issue cheques.

• Electronic cash payments and cheques prepared only after all source documents
have been independently approved.

• Review of cash payments by manager before release.

• Daily cash payments reconciled to posting to payable accounts.

Lecture support notes by Alan Biju Palak

• Use of pre-numbered cheques.
• Reconciliation of daily payments report to electronic cash payment transfers and
cheques issued.
• Monthly bank reconciliations of bank statements to ledger account.

• Supplier statements reconciled to payable accounts regularly.

• Agreement of monthly cash payments journal to general ledger posting.

• Payable accounts reconciled to general ledger control account.

• Reconciliation of electronic funds transfers and cheques issued with postings to cash

payments journal and payable accounts.

• Chart of accounts.

• Independent approval and review of general ledger account assignment. 


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ACCA AA Control activities

Cash receipts
• Separate responsibilities for the recording, receipt and reconciliation of cash.

• Monthly bank reconciliations performed and independently reviewed.

• Use of cash registers or point-of-sale devices.

• Periodic inspections of cash sales procedures.

• Restrictive endorsement of cheques immediately on receipt.

• Mail opened by two staff members.

• Immediate preparation of cash book or list of mail receipts.

• Independent check of agreement of cash/cheques to be deposited at bank with

Lecture support notes by Alan Biju Palak

register totals and receipts listing.
• Independent check of agreement of bank deposit slip with daily cash summary.

• Daily cash receipts listing reconciled with posting to customer accounts.

• Customer statements prepared and sent out on a regular basis.
• Daily remittance report reconciled to control listing of remittance advices.

• Monthly bank statement performed and reviewed independently.

• Daily remittance report reconciled daily with postings to cash receipts journal and
customer accounts.

• Monthly customer statements sent out.

• Monthly cash receipts journal agreed to general ledger posting.

• Receivables' ledger reconciled to control account.

• Bank reconciliation at period end.

• Chart of accounts (COA) in place and is regularly reviewed for appropriateness and
updated where necessary.

• Codes in place for different types of receipt.


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ACCA AA Control activities

The payroll system

• Segregation of duties between HR and payroll functions.

• Personnel files held for all employees.

• Authorisation procedures for hiring, terminating, time worked, wage rates,

overtime, benefits etc.

• Any changes in employment status of employees informed to HR department.

• Use of time clocks to record time worked.

• Clock cards approved by supervisor.

• Pre-numbered clock cards in use.

• Employee numbers assigned to each employee in the payroll master file. Only
employees with valid employee numbers are paid.

Lecture support notes by Alan Biju Palak

• Payroll budgets in place and reviewed by management.

• Regular reconciliations carried out of payroll records and employee costs recorded
in the general ledger.
• Comparison of cheques and bank transfer list with payroll to ensure all employees
paid have been recorded via payroll.
• Preparation and authorisation of cheques and bank transfer lists.
• Reperformance of a sample of payroll benefit and deduction calculations.

• Payroll budgets in place and reviewed by management.

• Agreement of gross earnings and total tax deducted with taxation returns.

• Changes to master payroll file verified through 'before and after' reports.

• Payroll master file reconciled to general ledger.

• All starters, leavers, changes to salaries and deductions are reported promptly to
payroll department and changes are updated in the payroll master file promptly.

• Chart of accounts.

• Independent approval and review of accounts charged to payroll.

• Payroll budgets in place and reviewed by management.

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ACCA AA Control activities

Revenue and capital expenditure

• Orders for capital items should be authorised by appropriate levels of management.

• Orders should be requisitioned on appropriate (different to revenue)

documentation.

• Invoices should be approved by the person who authorised the order.

• Invoices should be marked with the appropriate general ledger code.

• Capital items should be written up in the non-current asset register.

• The non-current asset register should be reconciled regularly to the general ledger
and any differences investigated and resolved promptly.

• Physical inspection of non-current assets – Asset details agree to register.

• Maintenance of non-current asset register.

Lecture support notes by Alan Biju Palak

• Physical inspection of non- current assets – Assets are properly maintained and
used.

• Maintenance schedule requiring checks at specified intervals.

• Precautions against theft or misuse.
• Physical safeguards in place to ensure assets are not stolen or damaged.
• Where necessary, access is restricted to authorised personnel only.
• Adequate insurance is in place.
• Portable assets should be tagged and any movements in and out of the entity's
premises recorded.

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