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Example Audit Program Guide

General Controls Review

KPMG LLP does not offer internal audit outsourcing services

to its publicly registered financial statement audit clients.

User Guidance: This audit program is designed to be used for reference purposes only. 
Consistent with our IAS methodology, each engagement team must assess the specific risks
associated with the applicable processes within [insert business process here – for example,
Cash Disbursements] at their client and determine the controls in place to mitigate the identified
risks.  Once the controls have been identified, the engagement team must determine which
controls are most important (and therefore should be tested), and subsequently design the tests
in order to determine the effectiveness of the controls.  This audit program is not designed to
replace the “process-risks-controls-tests” process that must be followed – rather, it is merely a
guide to assist in determining specific tests for controls within the general control environment.
Accordingly, professional judgment must be used when considering the information included in
this program.

This document has not been risk reviewed. The information contained in this document is
presented for example purposes only. This document is provided as a reference for layout,
structure, and format. It should be tailored to the specific client needs and engagement objectives.
This template should be modified for your specific client situation. Professional judgment, based
on individual circumstances, must be used when considering the use of this template.
 General Controls Review
Month 20xx

AUDIT OBJECTIVES:

 Gain an understanding of the general business environment and controls covering purchasing,
receiving, inventory management, shipping, invoicing, R&A cancellations/revisions, account
reconciliations and G/L and report preparation.
 Review policies and procedures used to manage day-to-day operations relating to the above activities.
 Assess the internal control environment to conclude whether duties and responsibilities for the area
reviewed are adequately segregated.
 Review management’s monitoring of key performance indicators.
 Provide recommendations for improvements to internal controls and, where appropriate, recommend
possible enhancements to process performance.

AUDIT PROCEDURES:

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I. Policies and Procedures
a. Obtain and review any company policies
and procedures relating to the review to
verify they are comprehensive and cover
major areas set forth in the audit objectives.
b. Inquire if and when management last made
revisions to these policies and procedures
and the reasons behind the changes made.
c. Obtain any prior internal audit reports or
other documentation for this location that
may hold relevance to the revenue review.
II. Control Environment/Internal Controls
a. Inquire of management on how they handle
segregation of duties/responsibilities.
 Purchasing, receiving, and payment
processing duties should be properly
segregated through appropriate system
access.
b. Determine if compensating controls are in
place for operations lacking proper
segregation of duties?
c. Obtain an organization chart that reflects
areas of responsibility and reporting
relationships related to the area being
audited.
d. Review system access to for propriety over
the following key functions:
 Receiving
 Order entry
 Pricing

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 Vendor master file
 Making journal entries
 Credit Memos
 Accounts Payable
 Invoicing
 Shipping
e. Determine what safeguards are in place
to properly protect assets from theft or the
elements.
f. Determine if the depreciation method
used is in accordance with GAAP.
 Select a sample of assets and verify
that depreciation is accurately
calculated.
g. Determine if capital acquisitions are
properly approved.
 Select a sample of recent acquisitions
and determine if proper approval was
obtained.
h. Determine if authorization levels are
established.
i. Verify that checks are properly
safeguarded and duties are properly
segregated.
j. Verify that bank deposit slips,
endorsement stamps, and checks received
from customers are properly safeguarded
and segregated.
v. Select a sample of checks paid to
suppliers and obtain supporting
documentation.
w. Determine if the person applying
cash to a customer’s account receives the
checks prior to endorsement.
III. Purchasing
a. Determine the process for initiating, canceling
or amending purchase orders.
b. Determine if the system automatically assigns
purchase order numbers sequentially.
c. Determine if the system contains built-in
controls to identify duplicate purchase orders,
purchase orders for fictitious customers, etc.
d. Determine if authorization levels are
established.
 Select a sample of purchase orders and
determine if proper approval was obtained.
e. Determine if invoices are properly approved

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prior to payment.
 Select a sample of invoices and determine
if proper approval was obtained.
f. Verify that a three-way match is completed
prior to payment (the order matches with the
invoice and the invoice matches with the
items received).
g. Select a sample of items purchased from
Corporate and compare to invoices received
from Corporate to verify accuracy of payment.
h. Determine if the vendor master file is
maintained outside of the Accounts Payable
Department.
i. Determine if a formalized process is in place
to approve new suppliers.
j. Determine the process in place to account for
purchase returns.
k. Determine if a received but not invoiced
report is maintained and monitored by
management.
l. Verify that goods received but not invoiced
are properly accrued for.
IV. Receiving
V. Determine the steps taken when receiving
material. Specifically:
 Determine if all goods are received via a
single receiving point.
 Determine if material received is
inspected for quality upon receipt.
 Determine if the product received is
compared to P.O. and/or packing list (i.e.
description, part number) before being
accepted.
 Determine the steps taken when partial
orders are received.
 Determine if unmatched receivers are
investigated and unauthorized items
(without a valid P.O.) are identified for
return to the vendor.
 Determine if a substitute packing slip is
used when material is received without a
packing slip.
 Determine if the individuals receiving
goods sign and date the packing slip to
document receipt and confirm accuracy of
material received.
 Determine how the material receipt data is
entered into the material receipt system.

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(Does someone other than the individual
receiving items make the entry –
segregation of duties)
 Determine if receiving reports are
maintained for all items received.
 Determine if receiving reports are
numerically accounted for or otherwise
controlled to ensure that all receipts are
reported to the accounting department.
 Determine if copies of the receiving
reports are sent to the purchasing and
accounting departments.
 Determine if an authorized individual
signs copies of the receiving reports prior
to distribution
 Determine if damaged receipts are
properly segregated from receipts that will
be used in production.
VI. Select a sample of material receipts and
perform the following:
 Verify that there is an approved purchase
order for the material received.
 Verify the material received was
compared to the packing list (i.e.
description, part number) before being
accepted.
VII. Inventory Management and Reporting
a. Determine if separate controls are maintained
over inventories held:
 On consignment.
 At an outside processor’s location.
 In an outside storage warehouse.
b. Determine if inventory adjustments are
monitored.
c. Determine the inventory costing and valuation
method (i.e., Standard costing vs. FIFO
valuation, etc.) used at the company.
d. Determine if there is a separate area to store
damaged inventory.
e. Determine how damaged inventory is tracked.
 Select a sample of damaged inventory to
determine if actual quantity on hand is
reported accurately in the system.
f. Determine the procedures associated with
Scrap/Salvage. Specifically, determine the
following:
 Is there adequate control over the
accumulation and sale of scrap/salvaged

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inventory?
 Are adjustments to inventory due to
scrap/salvage made and communicated in a
timely manner?
 What method is used to determine an
acceptable level of scrap?
 What criteria must be met in order to
classify parts as scrap/salvage?
 How is scrap/salvage inventory reported
to management?
 What methods are used to monitor, track
and record salvage/scrap?
g. Determine if a formalized methodology is
used to calculate the shrink reserve.
h. Verify that the shrink reserve is computed in
accordance with the reserve methodology.
i. Determine the procedures used to identify
slow moving, obsolete and excess inventory.
Specifically, determine the following:
 Has management established
criteria to determine whether inventory is
active, obsolete, or slow moving?
 Does the facility have a program
for the disposal of obsolete inventory?
 How often are obsolete inventory,
unusable inventory, and un-saleable
inventory written-off?
 Are discontinued products phased
out to mitigate obsolescence?
 Does the facility negotiate with
vendors for the buyback of excess and
obsolete inventory?
 Is the “Purchase Parts” file
periodically reviewed for obsolete parts?
 Is obsolete inventory segregated
from material used in production?
 Does the facility have a program
for the disposal of obsolete inventory?
j. Review the results of the most recent
obsolescence and excess inventory reports and
determine the following
 What classification parameters are
used?
 What are the major obsolete
items?
 What are the reasons for the
obsolescence?

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k. Determine if a formalized methodology is
used to calculate the obsolescence reserve.
l. Verify that the obsolescence reserve is
computed in accordance with the reserve
methodology.
m. Determine if periodic inventory counts are
performed to identify differences between
actual and perpetual inventory.
n. Verify that adjustments are made to the
general ledger to reflect actual inventory on
hand.
o. Determine the frequency of physical inventory
counts (GAAP requires annual physical
inventory counts).
VI. Shipping and Invoicing
a. Determine if a revenue recognition policy is in
place
b. Select a sample of orders and verify that
revenue is recognized in the proper period.
c. Determine the process for shipping finished
good units to customers.
d. Determine what controls in place to help
ensure that all units loaded on a deliver truck
are properly accounted for.
e. Determine when customer orders are invoiced.
VII. Order Entry, R&A Cancellations/Revisions
a. Determine the steps to process an
order made via:
 Phone
 Fax
 Mail
 Internet
b. Perform a process walkthrough and
note the screens utilized to process an order in
[SYSTEM]S.
c. Determine the appropriate fields that
should contain built-in edit checks to prevent
the processing of illogical data such as order
entry errors, duplicate orders, and fictitious
customers.
d. Verify that the built-in edit checks are
in place and working properly by attempting
to process a transaction that contains illogical
data.
e. Determine if users are able to override
the system edit checks.

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f. Determine the procedures for
handling backorders, miscellaneous charges,
freight charges, credit holds, order holds,
cancellations and changed orders.
g. Determine the steps taken when
payment is received for orders.
h. Determine the steps taken to collect
from customers with overdue balances.
i. Determine if a review of open
receivables is performed to identify aged
items and evaluate reserves.
j. Obtain the most recent month-end
accounts receivable aging report.
 Determine if receivables are
written off in accordance with the
formal charge-off policy.
 If charge-off has not occurred,
determine if management approved
the policy exceptions.
 Select a sample of aged items and
verify the aging is properly
calculated by the system and the
amount owed to the company is
properly stated.
k. Obtain a listing of customer write-offs
for the previous six months.
 Select a sample of write-offs and
determine if proper approval was
obtained.
m. Determine if procedures used to calculate
the reserve for bad debts is in accordance
with GAAP.
n. Verify that the reserve for bad
debts is computed in accordance with the
reserve methodology.
o. Verify that items listed on the
A/R Aging report are properly reserved for.
p. Determine the return
authorization and credit memo procedures
for returned items.
q. Select a sample of credit memos
issued during 20xx and perform the
following:
 Verify that the credit memos were
properly approved prior to issuance.

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 Verify that the credit memo agrees in
price and quantity to the original
billing.
 Verify that the credit memo was
applied to the correct customer
account.
r. Determine if credit memos
>$xxx.00 are properly approved.
s. Determine if sales returns are
monitored to identify the root cause.
VIII. Account Reconciliations
a. Select the previous three months bank
reconciliations and perform the following:
 Review reconciling items for
reasonableness and test for unusual items.
Note that reconciling items are cleared on
a timely basis.
 Trace the most recent month’s
reconciliation to supporting
documentation.
 Verify that a person independent from the
reconciliation process properly reviewed
the reconciliations.
b. Select the previous three months accounts
receivable reconciliations and perform the
following:
 Review reconciling items for
reasonableness and test for unusual items.
Note that reconciling items are cleared on
a timely basis.
 Trace the most recent month’s
reconciliation to supporting
documentation.
 Verify that a person independent from the
reconciliation process properly reviewed
the reconciliations.
c. Select the previous three months accrued
expenses reconciliations and perform the
following:
 Review reconciling items for
reasonableness and test for unusual items.
Note that reconciling items are cleared on
a timely basis.
 Trace the most recent month’s
reconciliation to supporting
documentation.

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 Verify that a person independent from the
reconciliation process properly reviewed
the reconciliations.
d. Determine if the person preparing the
reconciliations has the ability to make
entries to the general ledger or process
payments.
e. If segregation issues are present, determine
if compensating controls are in place.

IX. G/L and Report Preparation

a. Determine the process for
making journal entries to the general ledger.
b. Trace a sample of
customer orders to the customer contract to
verify orders are properly authorized and
recorded in the general ledger.
c. Determine how sales and
expenses are reported on financial reports.
Specifically,
 Are PDSN and NA orders reported
separately or consolidated?
 Are product types reported separately
or consolidated?
d. Select a sample of items
from the month-end checklist and verify that
procedures were properly followed.
e. Determine how financial
information is distributed to the Finance
Department.
f. Trace a sample of cash
disbursements pulled by Company to
supporting documentation to verify accuracy
of disbursements.
X. Key Performance Indicators
a. Determine the KPI’s and measures used by
management at the Rockford subsidiary
facility. Determine the following:
 Are they appropriate?
 Are they measured accurately and
timely?
 What action does management take
when they are unacceptable?
 Obtain supporting documentation for
sample of KPI’s and re-calculate to
verify accuracy.

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