INTERNAL CONTROL TOOLS

INTRODUCTION
The document is a set of best practices and is not intended to represent either an all-encompassing list of controls or
the only controls that should be considered in performing an audit. This document may be used as a guide to assist
users to identify control activities that may address, individually or in combination, a control objective. As part of
considering the design of a control activity for a specific engagement, the practitioner should challenge the
appropriateness of the default coverage level, which is a suggestion rather than an absolute state, given the particular
circumstances for that engagement (e.g., the rigor with which a control activity is performed, the qualifications of the
individuals performing the control activity). This document is divided into two sections. The first section relates to
Segregation of Duties and the second section to Control Activities. The two sections are organized by business cycle.
The control objectives related to a business cycle are grouped together with each relevant best practice control activity.

The following are the account balances which are addressed by each of the Business Cycle:

BUSINESS CYCLE RELATED ACCOUNT BALANCES

Expenditure Cycle Operating Expenses

Payables
Accrued Expenses
Prepaid Expenses
Fixed Assets Cycle Property
Depreciation Expense
Inventory Management Cycle Inventory
Cost of Sales
Payroll and Personnel Cycle Salary Expense
Wages Expense
Payroll Related Expenses
Payroll Related Accruals
Payroll Related Provisions
Revenue Cycle Sales
Receivables
Treasury Cycle Notes Payable, Long-Term Debt
Investments/Derivatives
Off-balance Sheet Derivative Transactions
Investment Income
Interest Expense

Business cycles, related account balances and principal business activities:

BUSINESS CYCLE RELATED ACCOUNT BALANCES PRINCIPAL BUSINESS ACTIVITIES
Expenditure Cycle Operating Expenses Purchasing
Payables Processing accounts payable
Accrued Expenses Processing disbursements
Prepaid Expenses Maintaining supplier master file
Fixed Assets Cycle Property Acquiring fixed assets
Depreciation Expense Depreciating fixed assets
Disposing of fixed assets
Managing fixed assets
Maintaining fixed assets register
Inventory Management Cycle Inventory Managing inventory

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 Cost of Sales Receiving and storing raw materials
Requisitioning materials
Producing/costing inventory
Handling finished products
Shipping finished products
Maintaining inventory master file
Payroll and Personnel Cycle Salary Expense Hiring personnel
Wages Expense Terminating personnel
Payroll Related Expenses Recording time
Payroll Related Accruals Calculating payroll
Payroll Related Provisions Disbursing payroll
Maintaining payroll master file
Revenue Cycle Sales Managing and processing orders
Receivables Invoicing, sales returns and adjustments
Processing cash receipts
Maintaining customer master files
Treasury Cycle Notes Payable, Long-Term Debt Borrowing
Investments/Derivatives Managing cash and investments
Off-balance Sheet Derivative Transactions Managing derivative transactions
Investment Income
Interest Expense

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TABLE OF CONTENTS
INTRODUCTION..................................................................................................1
TABLE OF CONTENTS........................................................................................3
MATRIX OF CONTROL OBJECTIVES..................................................................
EXPENDITURE CYCLE...................................................................................4
FIXED ASSET CYCLE.....................................................................................5
INVENTORY MANAGEMENT..........................................................................6
PAYROLL AND PERSONNEL..........................................................................7
REVENUE CYCLE...........................................................................................8
TREASURY CYCLE.........................................................................................9
CONTROL ACTIVITIES..........................................................................................
EXPENDITURE CYCLE ...............................................................................11
FIXED ASSET CYCLE...................................................................................14
INVENTORY MANAGEMENT........................................................................18
PAYROLL AND PERSONNEL........................................................................22
REVENUE CYCLE.........................................................................................24
TREASURY CYCLE.......................................................................................27

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Matrix of control objectivcs

MATRIX OF CONTROL OBJECTIVES

EXPENDITURE CYCLE
ACCOUNT BALANCES Operating Payables Accrued Prepaid Expenses
Expenses Expenses
CONTROL OBJECTIVES
PURCHASING
Purchase orders are placed only for approved Occurrence Occurrence Occurrence Occurrence
requisitions.
Purchase orders are entered accurately. Accuracy Accuracy Accuracy Accuracy
All purchase orders issued are input and Completeness Completeness Completeness Completeness
processed.
PROCESSING ACCOUNTS PAYABLE
Amounts posted to accounts payable represent Existence Existence Existence Existence
goods or service received.
Accounts payable amounts are accurately Accuracy Accuracy Accuracy Accuracy
calculated and recorded.
All amounts for goods and service received are Completeness Completeness Completeness Completeness
input and processed to accounts payable.
Amounts for goods or services received are Cutoff Cutoff Cutoff Cutoff
recorded in the appropriate period.
Accounts payable are only adjusted for valid Completeness Completeness Completeness Completeness
reasons. Existence Existence Existence Existence
Credit notes and other adjustments are Accuracy Accuracy Accuracy Accuracy
accurately calculated and recorded.
All valid credit notes and other adjustments Completeness Completeness Completeness Completeness
related to accounts payable are input and Existence Existence Existence Existence
processed.
Credit notes and other adjustments are Cutoff Cutoff Cutoff Cutoff
recorded in the appropriate period.
Assets and liabilities reflect the existing Valuation & Valuation & Valuation &
business circumstances and economic allocation allocation allocation
conditions in accordance with the accounting
policies being used.
Financial information is not presented in a Classification Classification Classification Classification
misleading way, and all information that is
necessary for fair presentation and compliance
with professional standards or legal
requirements is disclosed.
PROCESSING DISBURSEMENTS
Disbursements are only made for goods and Occurrence Completeness Completeness Occurrence
services received.
Disbursements are distributed to the Completeness Completeness
appropriate suppliers.
Disbursements are accurately calculated and Accuracy Accuracy Accuracy Accuracy
recorded.
All disbursements are recorded. Completeness Occurrence Occurrence Completeness
Disbursements are recorded in the period in Cutoff Cutoff Cutoff Cutoff
which they are issued.
MAINTAINING SUPPLIER MASTER
FILE
All valid changes to the supplier master file Completeness Completeness Completeness Completeness
are input and processed. Existence Existence Existence Existence
Changes to the supplier master file are Accuracy Accuracy Accuracy Accuracy
accurate.
Supplier master file data remains pertinent. Completeness Completeness Completeness Completeness
Existence Existence Existence Existence

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Matrix of control objectivcs

FIXED ASSET CYCLE

ACCOUNT BALANCES Property Depreciation
Expense
CONTROL OBJECTIVES
ACQUIRING FIXED ASSETS
Recorded fixed asset acquisitions represent fixed assets acquired by the Rights &
organization. Obligations
Fixed asset acquisitions are accurately recorded. Accuracy
Fixed asset acquisitions are recorded in the appropriate period. Cutoff
All fixed asset acquisitions are recorded. Completeness
DEPRECIATING FIXED ASSETS
Depreciation charges are valid. Completeness Occurrence
Depreciation charges are accurately calculated and recorded. Accuracy Accuracy
All depreciation charges are recorded in the appropriate period. Existence Completeness
Cutoff Cutoff
DISPOSING OF FIXED ASSETS
Recorded fixed asset disposals represent actual disposals. Completeness
All fixed asset disposals are recorded. Occurrence
Fixed asset disposals are accurately calculated and recorded. Accuracy
Fixed asset disposals are recorded in the appropriate period. Cutoff
MANAGING FIXED ASSETS
Records of fixed asset maintenance activity are accurately maintained. Completeness
Fixed assets are adequately safeguarded. Rights &
Obligations
Fixed asset maintenance records are updated timely. Completeness
Fixed assets reflect the existing business circumstances and economic Valuation &
conditions in accordance with the accounting policies being used. allocation
Financial information is appropriately presented, and all information that Classification Classification
is necessary for fair presentation and compliance with professional
standards or legal requirements is disclosed.
MAINTAINING FIXED ASSET REGISTER AND/OR MASTER
FILE
All valid changes to the fixed asset register and/or master file are input Completeness Completeness
and processed. Existence Existence
Changes to the fixed asset register and/or master file are accurate. Accuracy Accuracy
Fixed asset register and/or master file data remains pertinent. Completeness Completeness
Existence Existence

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Matrix of control objectivcs

INVENTORY MANAGEMENT
ACCOUNT BALANCES Inventory Cost of Sales

CONTROL OBJECTIVES
MANAGING INVENTORY
Inventory is salable or usable. Valuation &
allocation
Inventory is adequately safeguarded. Rights &
Obligations
Adjustments to inventory prices or quantities relate to valid price changes and Occurrence Occurrence
physical inventory differences. Completeness Completeness
Accuracy Accuracy
Adjustments to inventory prices or quantities are recorded timely and in the Cutoff Cutoff
appropriate period.
Adjustments to inventory prices or quantities are recorded accurately. Accuracy Accuracy
Inventory reflects the existing business circumstances and economic conditions in Valuation &
accordance with the accounting policies being used. allocation
Financial information is appropriately presented, and all information that is Classification
necessary for fair presentation and compliance with professional standards or legal
requirements is disclosed.
RECEIVING AND STORING RAW MATERIALS
Raw materials are received and accepted only if they have valid purchase orders. Occurrence
Raw materials received are recorded accurately. Accuracy Accuracy
All raw materials received are recorded. Completeness Completeness
Receipts of raw materials are recorded timely and in the appropriate period. Cutoff Cutoff
REQUISITIONING MATERIALS
All transfers of raw materials to production are recorded accurately and in the Accuracy Accuracy
appropriate period. Cutoff Cutoff
Completeness
PRODUCING/COSTING INVENTORY
All recorded production costs are consistent with actual direct and indirect expenses Occurrence Occurrence
associated with production. Accuracy Accuracy
All direct and indirect expenses associated with production are recorded as Completeness Completeness
production costs. Accuracy Accuracy
All direct and indirect expenses associated with production are recorded accurately Cutoff Cutoff
and in the appropriate period.
All transfers of completed units of production to finished goods inventory are Accuracy Accuracy
recorded completely and accurately in the appropriate period. Completeness Completeness
All defective products and scrap resulting from the production process are valid and Accuracy Accuracy
recorded completely and accurately in the appropriate period. Completeness Completeness
Cutoff Cutoff
Occurrence Occurrence
HANDLING FINISHED PRODUCTS
Finished goods received from production and/or returned from customers are Accuracy Accuracy
recorded completely and accurately in the appropriate period. Completeness Completeness
Cutoff Cutoff
Goods received from production or returned by customers are only accepted in Existence
accordance with the organization’s policies.
SHIPPING FINISHED PRODUCTS
All shipments are recorded. Occurrence Occurrence
Shipments are recorded accurately. Accuracy Accuracy
Shipments are recorded timely and in the appropriate period. Cutoff Cutoff
Inventory is relieved only when goods are shipped with approved customer orders. Completeness Completeness
Costs of shipped inventory are transferred from inventory to cost of sales. Occurrence Completeness
Costs of shipped inventory are recorded accurately. Accuracy Accuracy
Amounts posted to cost of sales represent those associated with shipped inventory. Completeness Occurrence
Costs of shipped inventory are transferred from inventory to cost of sales timely and Cutoff Cutoff`
in the appropriate period.
MAINTAINING INVENTORY MASTER FILE
All valid changes to the inventory management master file are input and processed. Existence Existence
Completeness Completeness
Changes to the inventory management master file are accurate. Accuracy Accuracy
Inventory management master file remains pertinent. Completeness Completeness
Existence Existence

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Matrix of control objectivcs

PAYROLL AND PERSONNEL

ACCOUNT BALANCES Salary, Wages & Payroll-Related
Payroll-Related Accruals /
Expenses Provisions
CONTROL OBJECTIVES
HIRING PERSONNEL
Additions to the payroll master files represent valid employees. Occurrence Occurrence
All new employees are added to the payroll master files. Completeness Completeness
TERMINATING PERSONNEL
Terminated employees are removed from the payroll master files. Occurrence Occurrence
Deletions from the payroll master files represent valid terminations. Completeness Completeness
ACCURACY TIME
Time and attendance data recorded reflects actual time worked and is Occurrence Occurrence
authorized.
All time worked is input. Completeness Completeness
Time worked is accurately input and processed. Accuracy Accuracy
Time worked is processed timely. Cutoff Cutoff
CALCULATING PAYROLL
Payroll is recorded in the appropriate period. Cutoff Cutoff
Payroll (including compensation and withholdings) is accurately Accuracy Accuracy
calculated and recorded.
Payroll related accruals/provisions reflect the existing business Valuation &
circumstances and economic conditions in accordance with the allocation
accounting policies being used.
Financial information is not presented in a misleading way, and all Classification Classification
information that is necessary for fair presentation and compliance with
professional standards or legal requirements is disclosed.
DISBURSING PAYROLL
Payroll disbursements and recorded payroll expenses relate to actual time Occurrence Occurrence
worked.
Payroll is disbursed to appropriate employees. Occurrence Occurrence
MAINTAINING PAYROLL MASTER FILES
All valid changes to the payroll master files are input and processed. Existence Existence
Completeness Completeness
Changes to the payroll master files are accurate. Accuracy Accuracy
Payroll master files data remains pertinent. Completeness Completeness
Existence Existence

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Matrix of control objectivcs

REVENUE CYCLE
ACCOUNT BALANCES Sales Receivables

CONTROL OBJECTIVES
Managing and Processing Orders
Orders are only processed within approved customer credit limits. Valuation &
allocation
Orders are approved by management as to prices and terms of sale. Occurrence Occurrence
Orders and cancellations of orders are input accurately. Accuracy Accuracy
Order entry data is transferred completely and accurately to the shipping Accuracy Accuracy
and invoicing activities. Completeness Completeness
All orders received from customers are input and processed. Completeness Completeness
Only valid orders are input and processed. Occurrence Occurrence
Invoicing, Sales Returns and Adjustments
Invoices are generated using authorized terms and prices. Accuracy Accuracy
Invoices are accurately calculated and recorded. Accuracy Accuracy
Credit notes and adjustments to accounts receivable are accurately Accuracy Accuracy
calculated and recorded.
All goods shipped are invoiced. Completeness Completeness
Credit notes for all goods returned and adjustments to accounts receivable Existence Existence
are issued in accordance with organization policy.
Invoices relate to valid shipments. Occurrence Occurrence
All credit notes relate to a return of goods or other valid adjustments. Completeness Completeness
All invoices issued are recorded. Completeness Completeness
All credit notes issued are recorded. Occurrence Occurrence
Invoices are recorded in the appropriate period. Cutoff Cutoff
Credit notes issued are recorded in the appropriate period. Cutoff Cutoff
Accounts Receivable reflect the existing business circumstances and Valuation &
economic conditions in accordance with the accounting policies being allocation
used.
Sales and Accounts Receivable information is appropriately presented, Classification Classification
and all information that is necessary for fair presentation and compliance
with professional standards or legal requirements is disclosed.
Processing Cash Receipts
Cash receipts are recorded in the period in which they are received. Cutoff
Cash receipts data is entered for processing accurately. Accuracy
All cash receipts data is entered for processing. Occurrence
Cash receipts data is valid and is entered for processing only once. Completeness
Cash discounts are accurately calculated and recorded Accuracy Accuracy
Timely collection of accounts receivable is monitored. Valuation &
allocation
Maintaining Customer Master File
All valid changes to the customer master file are input and processed. Completeness Completeness
Existence Existence
Changes to the customer master file are accurate. Accuracy Accuracy
Customer master file data remains pertinent. Completeness Completeness
Existence Existence

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Matrix of control objectivcs

TREASURY CYCLE
ACCOUNT BALANCES Notes Payable, Investments/ Off-balance sheet Investment
Long-Term Derivatives Derivative Income Interest
Debt Transactions Expense
CONTROL OBJECTIVES
BORROWING
Recorded debt represents a valid liability of the Rights &
organization. Obligations
Borrowings are recorded accurately as to Accuracy
amounts and terms.
All borrowings are recorded. Completeness
Borrowings are recorded in the appropriate Cutoff
period.
All interest is accurately calculated and recorded Completeness
in the appropriate period. Occurrence
Accuracy
Cutoff
Recorded loan repayments are valid. Completeness
Loan repayments are accurately recorded. Accuracy
All loan repayments are recorded. Occurrence

Loan repayments are recorded in the appropriate Cutoff

period.
Loans are repaid in accordance with the terms of Completeness
the loan.
The organization complies with loan covenants. Completeness
MANAGING CASH AND INVESTMENTS
Recorded investments represent assets of the Rights &
organization. Obligations
Investment purchases, sales, and maturities are Accuracy
accurately recorded.
All investment transactions are recorded. Completeness
Investment transactions are recorded in the Cutoff
appropriate period.
All investment income is accurately calculated Completeness
and recorded in the appropriate period. Occurrence
Accuracy
Cutoff
Loans and investments reflect the existing Valuation & Valuation &
business circumstances and economic conditions allocation allocation
in accordance with the accounting policies being
used.
Financial information is appropriately presented Classification Classification Classification
and all information that is necessary for fair
presentation and compliance with professional
standards or legal requirements is disclosed.
MANAGING DERIVATIVE
TRANSACTIONS
Senior management has an understanding of the Occurrence Classification Occurrence
organization's derivative activities. Completeness Completeness
Accuracy Accuracy
Cutoff Cutoff
Classification
Recorded derivative transactions represent Rights &
assets or liabilities of the organization. Obligations
Disclosed off-balance sheet derivative Classification
transactions represent valid transactions.
Derivative transactions are accurately recorded. Accuracy
Disclosed off-balance sheet derivative Classification
transactions are properly presented.
All derivative transactions are recorded in the Completeness
financial statements.
All off-balance sheet derivative transactions are Classification
disclosed in the financial statements.

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Matrix of control objectivcs

ACCOUNT BALANCES Notes Payable, Investments/ Off-balance sheet Investment

Long-Term Derivatives Derivative Income Interest
Debt Transactions Expense
Derivative transactions are recorded in the Cutoff
appropriate period.
Off-balance sheet derivative transactions are Classification
recorded in the financial statements in the
appropriate period.
All investment income on derivative transactions Occurrence
is accurately calculated and recorded in the Completeness
appropriate period. Accuracy
Cutoff
All interest expense on derivative transactions is Occurrence
accurately calculated and recorded in the Completeness
appropriate period. Accuracy
Cutoff
Derivative transactions reflect the existing Valuation & Classification
business circumstances and economic conditions allocation
in accordance with the accounting policies being
used.

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Control Activities - Expenditure

EXPENDITURE CYCLE – example of control activities

PURCHASING
Purchase orders are placed only for approved requisitions.
 Management must approve all purchase orders, with higher level management authority required for unusual
purchases (such as capital outlays or standing orders) and all purchases that exceed established limits. Board
approval is required for specified types of purchases and this approval is appropriately documented.
 Purchase orders are reviewed and approved by management prior to mailing to the supplier.
Purchase orders are entered accurately.
 Purchase order entry data is compared to source documents by individuals who are independent of the purchase
order entry process.
 Purchase orders are batched and batch input is balanced; out-of-balance batches are corrected promptly.
 Purchase order data is edited and validated; identified errors are corrected promptly.
All purchase orders issued are input and processed.
 Purchase orders are sequentially prenumbered. The sequence of purchase orders processed is accounted for.
 Purchase orders are batched and batch input is balanced; out-of-balance batches are corrected promptly.
 Purchase requisitioning, purchasing, inventory management, and accounts payable functions are performed by an
integrated application system. The general ledger is automatically updated for receipt and disbursement
transactions.

PROCESSING ACCOUNTS PAYABLE

Amounts posted to accounts payable represent goods and services received.
 Goods received are matched on-line or manually with purchase order details and/or invoices; long outstanding
goods receipt notes, purchase orders and/or invoices are investigated timely and accrued as appropriate;
documents are canceled once matched or on payment of the invoice to prevent reuse.
 Invoices for services received are authorized and accompanied by appropriate supporting documentation.
 Management reviews recorded purchases (receipts of goods) based on its knowledge of day-to-day activity.
 Invoices not matched to goods receipt notes (or other appropriate supporting documentation for services received)
are investigated; payments on unmatched invoices require specific management approval.
 Actual expenditures are compared to budget regularly; management reviews and approves significant variances.
Accounts payable amounts are accurately calculated and recorded.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Management reviews recorded purchases (receipts of goods) based on its knowledge of day-to-day activity.
 Actual expenditures are compared to budget regularly; management reviews and approves significant variances.
 Data transferred from the purchase order entry subsystem to the receiving and/or accounts payable system is
reconciled between systems; all errors identified are corrected promptly.
 Invoices, credit notes, and other adjustments related to accounts payable are edited and validated; identified errors
are corrected promptly.
All amounts for goods and services received are input and processed to accounts payable.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Goods received are matched on-line or manually with purchase order details and/or invoices; long outstanding
goods receipt notes, purchase orders, and/or invoices are investigated timely and accrued as appropriate;
documents are canceled once matched or on payment of the invoice to prevent reuse.
 Management reviews recorded purchases (receipts of goods) based on its knowledge of day-to-day activity.
 Goods receipt vouchers (proof-of-delivery documentation) are prenumbered; the sequence of such vouchers is
accounted for.
 Actual expenditures are compared to budget regularly; management reviews and approves significant variances.
Amounts for goods or services received are recorded in the appropriate period.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Goods received are matched on-line or manually with purchase order details and/or invoices; long outstanding
goods receipt notes, purchase orders, and/or invoices are investigated timely and accrued as appropriate;
documents are canceled once matched or on payment of the invoice to prevent reuse.
 Supplier invoices and credit notes received at, before, or after the end of an accounting period are scrutinized and/or
reconciled to ensure complete and consistent recording in the appropriate period.

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Control Activities - Expenditure

 Goods received at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate period.
Accounts payable are only adjusted for valid reasons.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Management reviews and approves credit notes and adjustments prior to posting to accounts payable.
 Electronic queues are used by management to approve credit notes and adjustments; access to the queues is
restricted by logical security.
 Management reviews all recorded nonsystematic debits to accounts payable.
Credit notes and other adjustments are accurately calculated and recorded.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Invoices, credit notes, and other adjustments related to accounts payable are batched and batch input data is
balanced; out-of-balance batches are corrected promptly.
All valid credit notes and other adjustments related to accounts payable are input and
processed.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Invoices, credit notes, and other adjustments related to accounts payable are batched and batch input data is
balanced; out-of-balance batches are corrected promptly.
 Goods returned notes are matched to credit notes; differences are investigated promptly.
 Goods returned notes are sequentially prenumbered. The sequence of goods returned notes is accounted for and
long outstanding unmatched goods returned notes are reviewed and investigated.
Credit notes and other adjustments are recorded in the appropriate period.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Supplier invoices and credit notes received at, before, or after the end of an accounting period are scrutinized and/or
reconciled to ensure complete and consistent recording in the appropriate period.
 Goods returned at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate period.

PROCESSING DISBURSEMENTS
Disbursements are only made for goods and services received.
 Actual expenditures are compared to budget regularly; management reviews and approves significant variances.
 Management reviews supporting documentation before approving payments. Supporting documentation is
canceled once payment is made.
 Management reviews a listing of supplier payments prior to release.
Disbursements are distributed to the appropriate suppliers.
 Checks are restrictively endorsed by the preparer to ensure that they are paid to the specified payee.
 Management reviews supporting documentation before approving payments. Supporting documentation is
canceled once payment is made.
 Management reviews a listing of supplier payments prior to release.
Disbursements are accurately calculated and recorded.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Actual expenditures are compared to budget regularly; management reviews and approves significant variances.
 Management reviews supporting documentation before approving payments. Supporting documentation is
canceled once payment is made.
 Payment batch input data is balanced; identified errors are corrected promptly.
 Disbursement input data is edited and validated; identified errors are corrected promptly.
All disbursements are recorded.
 Statements received from suppliers are reconciled to the supplier accounts in the accounts payable subledger
regularly and differences are investigated.
 Bank statements are reconciled to the general ledger regularly.
 Management reviews an aged accounts payable analysis and investigates any unusual items.
 Checks are sequentially prenumbered; the sequence of checks processed is accounted for. Spoiled checks are
voided to prevent reuse and filed for subsequent inspection.
Disbursements are recorded in the period in which they are issued.
 Bank statements are reconciled to the general ledger regularly.

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Control Activities - Expenditure

 Disbursements at, before, or after the end of an accounting period are scrutinized to ensure complete and
consistent recording in the appropriate accounting period.
MAINTAINING SUPPLIER MASTER FILE
All valid changes to the supplier master file are input and processed.
 Supplier master file data is periodically reviewed by management for accuracy and ongoing pertinence.
 Requests to change the supplier master file data are logged; the log is reviewed to ensure that all requested
changes are processed timely.
 Requests to change the supplier master file data are submitted on prenumbered forms; the numerical sequence of
such forms is accounted for to ensure that all requested changes are processed timely.
Changes to the supplier master file are accurate.
 Supplier master file data is periodically reviewed by management for accuracy and ongoing pertinence.
 Recorded changes to the supplier master file are compared to authorized source documents to ensure that they
were input accurately.
 Supplier master file data is edited and validated; identified errors are corrected promptly.
Supplier master file data remains pertinent.
 Supplier master file data is periodically reviewed by management for accuracy and ongoing pertinence.
 Suppliers that have not been used for a significant period of time are reviewed and marked for deletion by the
application, if appropriate.

13
Control Activities – Fixed Assets

FIXED ASSET CYCLE – example of control activities

ACQUIRING FIXED ASSETS
Recorded fixed asset acquisitions represent fixed assets acquired by the organization.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy and
ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any reconciling items are
identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master file.
 Recorded changes to the fixed asset register and/or master file are compared to authorized source documents to
ensure that they were input accurately.
 All changes made to the fixed asset register and/or master file are approved by management.
 Asset acquisitions and related financing agreements are reviewed by management (including consideration of the
capital expenditure budget) before being authorized.
Fixed asset acquisitions are accurately recorded.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy and
ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any reconciling items are
identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master file.
 Recorded changes to the fixed asset register and/or master file are compared to authorized source documents to
ensure that they were input accurately.
 The balances in fixed assets and accumulated depreciation are rolled forward from one processing cycle to the
next using independently obtained asset acquisition, asset disposal, and depreciation expense data.
Fixed asset acquisitions are recorded in the appropriate period.
 Requests to change the fixed asset register and/or master file data are logged; the log is reviewed to ensure that
all requested changes are processed timely.
 Requests to change the fixed asset register and/or master file data are submitted on prenumbered forms; the
numerical sequence of such forms is accounted for to ensure that all requested changes are processed timely.
 Asset-related transactions at, before, or after the end of an accounting period are scrutinized and/or reconciled to
ensure complete and consistent recording in the appropriate accounting period.
All fixed asset acquisitions are recorded.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy and
ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any reconciling items are
identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master file.
 Requests to change the fixed asset register and/or master file data are logged; the log is reviewed to ensure that
all requested changes are processed timely.
 Requests to change the fixed asset register and/or master file data are submitted on prenumbered forms; the
numerical sequence of such forms is accounted for to ensure that all requested changes are processed timely.
 All authorized source documents supporting fixed asset acquisitions, disposals, and other changes to the fixed
asset register and/or master file data are compared to the fixed asset register and/or master file to ensure they
were input.
DEPRECIATING FIXED ASSETS
Depreciation charges are valid.
 The balances in fixed assets and accumulated depreciation are rolled forward from one processing cycle to the
next using independently obtained asset acquisition, asset disposal, and depreciation expense data.
 Depreciation is independently recalculated.
 Depreciation charges are reviewed by management, including consideration of the recording of such charges in
the appropriate accounting period.
 Depreciation rates and methods of calculation are reviewed periodically to ensure that they are reasonable and in
accordance with generally accepted accounting principles.

14
Control Activities – Fixed Assets

 Management monitors compliance with all significant policies concerning fixed assets. All exceptions to fixed
asset policies and procedures noted are raised to the appropriate level within the entity and pursued to proper
resolution.
Depreciation charges are accurately calculated and recorded.
 The balances in fixed assets and accumulated depreciation are rolled forward from one processing cycle to the
next using independently obtained asset acquisition, asset disposal, and depreciation expense data.
 Depreciation is independently recalculated.
 Standard programmed algorithms perform depreciation calculations.
 Depreciation exception items (in terms of expectations established by management) are consistently identified,
monitored, and corrected.
All depreciation charges are recorded in the appropriate period.
 The balances in fixed assets and accumulated depreciation are rolled forward from one processing cycle to the
next using independently obtained asset acquisition, asset disposal, and depreciation expense data.
 Depreciation is independently recalculated.
 Depreciation charges are reviewed by management, including consideration of the recording of such charges in
the appropriate accounting period.
 Depreciation exception items (in terms of expectations established by management) are consistently identified,
monitored, and corrected.
DISPOSING OF FIXED ASSETS
Recorded fixed asset disposals represent actual disposals.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy and
ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any reconciling items are
identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master file.
 Recorded changes to the fixed asset register and/or master file are compared to authorized source documents to
ensure that they were input accurately.
 All recorded disposals of fixed assets are approved by management.
All fixed asset disposals are recorded.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy and
ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any reconciling items are
identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master file.
 Requests to change the fixed asset register and/or master file data are logged; the log is reviewed to ensure that
all requested changes are processed timely.
 Requests to change the fixed asset register and/or master file data are submitted on prenumbered forms; the
numerical sequence of such forms is accounted for to ensure that all requested changes are processed timely.
 All authorized source documents supporting fixed asset acquisitions, disposals, and other changes to the fixed
asset register and/or master file data are compared to the fixed asset register and/or master file to ensure they
were input.
Fixed asset disposals are accurately calculated and recorded.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy and
ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any reconciling items are
identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master file.
 Recorded changes to the fixed asset register and/or master file are compared to authorized source documents to
ensure that they were input accurately.
 The balances in fixed assets and accumulated depreciation are rolled forward from one processing cycle to the
next using independently obtained asset acquisition, asset disposal, and depreciation expense data.
 Standard programmed algorithms perform the calculation of the profit or loss upon disposal of an asset.
 The profit or loss upon disposal of an asset is independently recalculated.
 Asset-related transactions affecting the fixed asset register and/or master file are edited and validated; identified
errors are corrected promptly.
Fixed asset disposals are recorded in the appropriate period.

15
Control Activities – Fixed Assets

 Requests to change the fixed asset register and/or master file data are logged; the log is reviewed to ensure that
all requested changes are processed timely.
 Requests to change the fixed asset register and/or master file data are submitted on prenumbered forms; the
numerical sequence of such forms is accounted for to ensure that all requested changes are processed timely.
 Asset-related transactions at, before, or after the end of an accounting period are scrutinized and/or reconciled to
ensure complete and consistent recording in the appropriate accounting period.
MANAGING FIXED ASSETS
Records of fixed asset maintenance activity are accurately maintained.
 Asset maintenance schedules are prepared, updated, and monitored by management and activity per the asset
maintenance schedule is reconciled to the asset maintenance history register regularly.
 Management periodically reviews asset maintenance activities, per the asset maintenance history register, to
ensure compliance with management's objectives.
 Changes to the asset maintenance history register are compared to source documents to ensure that they were
input accurately.
 Asset maintenance activities are edited and validated upon data entry; exceptions are investigated and resolved.
Fixed assets are adequately safeguarded.
 Fixed assets are located in an appropriately secured area where access is restricted to authorized personnel.
 Security personnel monitor all incoming and outgoing vehicles and ensure all goods leaving the premises are
accompanied by duly completed documentation.
 Prenumbered identification tags are attached to fixed assets on acquisition to facilitate accurate identification of
assets and recording of details.
 Management monitors compliance with all significant policies concerning fixed assets. All exceptions to fixed
asset policies and procedures noted are raised to the appropriate level within the entity and pursued to proper
resolution.
Fixed asset maintenance records are updated timely.
 Asset maintenance schedules are prepared, updated, and monitored by management and activity per the asset
maintenance schedule is reconciled to the asset maintenance history register regularly.
 Management periodically reviews asset maintenance activities, per the asset maintenance history register, to
ensure compliance with management's objectives.
 Maintenance activity is recorded on prenumbered sheets/work orders; numerical sequence of such forms is
accounted for.
Fixed assets reflect the existing business circumstances and economic conditions in accordance
with the accounting policies being used.
Management periodically reviews the valuations and/or realizability of fixed assets to identify permanent
 impairments and to properly record such.
MAINTAINING FIXED ASSET REGISTER AND/OR MASTER FILE
All valid changes to the fixed asset register and/or master file are input and processed.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy
and ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any
reconciling items are identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.
 Requests to change the fixed asset register and/or master file data are logged; the log is reviewed to
ensure that all requested changes are processed timely.
 Requests to change the fixed asset register and/or master file data are submitted on prenumbered
forms; the numerical sequence of such forms is accounted for to ensure that all requested changes are
processed timely.
 All authorized source documents supporting fixed asset acquisitions, disposals, and other changes to
the fixed asset register and/or master file data are compared to the fixed asset register and/or master
file to ensure they were input.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master
file.
Changes to the fixed asset register and/or master file are accurate.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy
and ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any
reconciling items are identified and addressed in a timely manner.
 Activity recorded in the lease register, fixed asset register, and/or fixed asset master file is reviewed by
management, including comparison to the capital expenditure budget.

16
Control Activities – Fixed Assets

 The balances in fixed assets and accumulated depreciation are rolled forward from one processing
cycle to the next using independently obtained asset acquisition, asset disposal, and depreciation
expense data.
 Recorded changes to the fixed asset register and/or master file are compared to authorized source
documents to ensure that they were input accurately.
 Periodic counts of fixed assets are performed and reconciled to the fixed asset register and/or master
file.
 Asset-related transactions affecting the fixed asset register and/or master file are edited and validated;
identified errors are corrected promptly.
Fixed asset register and/or master file data remains pertinent.
 The fixed asset register and/or master file data are periodically reviewed by management for accuracy
and ongoing pertinence and are reconciled to the corresponding general ledger accounts. Any
reconciling items are identified and addressed in a timely manner.

17
Control Activities – Inventory Management

INVENTORY MANAGEMENT – example of control activities

MANAGING INVENTORY
Inventory is salable or usable.
 The salability of finished goods and usability of raw materials are assessed regularly including a review during
physical inventory counts.
 Inventory is stored in properly secured and environmentally conditioned warehouse locations where access is
restricted to authorized personnel.
 Management monitors the adequacy and appropriateness of inventory levels.
Inventory is adequately safeguarded.
 Inventory is stored in properly secured and environmentally conditioned warehouse locations where access is
restricted to authorized personnel.
 Security personnel monitor all incoming and outgoing vehicles and ensure all goods leaving the premises are
accompanied by duly completed documentation.
 Goods are delivered only to designated, physically secure locations within a warehouse or storage building and
are accepted only by authorized personnel.
Adjustments to inventory prices or quantities relate to valid price changes and physical inventory
differences.
 Management reviews and approves all recorded adjustments to inventory prices or quantities.
 All inventory adjustments are compared to authorized source documents to ensure that they were accurately
input.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.
 Inventory adjustment forms are sequentially pre-numbered; the sequence of such forms is accounted for.
Adjustments to inventory prices or quantities are recorded timely and in the appropriate period.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and the inventory records are reconciled to general ledger.
 Management reviews and approves all recorded adjustments to inventory prices or quantities.
 Inventory quantities per the inventory management system are regularly reconciled to quantities per the
nonintegrated warehouse system.
Adjustments to inventory prices or quantities are recorded accurately.
 Management reviews and approves all recorded adjustments to inventory prices or quantities.
 All inventory adjustments are compared to authorized source documents to ensure that they were accurately
input.
 Inventory quantities per the inventory management system are regularly reconciled to quantities per the
nonintegrated warehouse system.
 Inventory adjustment data is edited and validated; identified errors are corrected promptly.

RECEIVING AND STORING RAW MATERIALS

Raw materials are received and accepted only if they have valid purchase orders.
 Goods received are matched on-line or manually with purchase order details and/or invoices; long outstanding
goods receipt notes, purchase orders, and/or invoices are investigated timely and accrued as appropriate;
documents are canceled once matched or on payment of the invoice to prevent reuse.
 When goods received are matched to open purchase orders, receipts with no purchase order or that exceed the
purchase order quantity by more than an established amount are rejected.
Raw materials received are recorded accurately.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.
 Goods received are logged; the log is reconciled to receipts input to the inventory management system that is
used to record movements of inventory in the financial records.
 Goods received are matched on-line or manually with purchase order details and/or invoices; long outstanding
goods receipt notes, purchase orders, and/or invoices are investigated timely and accrued as appropriate;
documents are canceled once matched or on payment of the invoice to prevent reuse.
 Management reviews recorded purchases (receipts of goods) based on its knowledge of day-to-day activity.
All raw materials received are recorded.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.

18
Control Activities – Inventory Management

 Goods received are logged; the log is reconciled to receipts input to the inventory management system that is
used to record movements of inventory in the financial records.
 Goods received are matched on-line or manually with purchase order details and/or invoices; long outstanding
goods receipt notes, purchase orders, and/or invoices are investigated timely and accrued as appropriate;
documents are canceled once matched or on payment of the invoice to prevent reuse.
 Management reviews recorded purchases (receipts of goods) based on its knowledge of day-to-day activity.
 Goods receipt vouchers (proof-of-delivery documentation) are prenumbered; the sequence of such vouchers is
accounted for.
 Supplier statements are reconciled to goods receipt records regularly.
 Invoices not matched to goods receipt notes (or other appropriate supporting documentation for services received)
are investigated; payments on unmatched invoices require specific management approval.
Receipts of raw materials are recorded timely and in the appropriate period.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.
 Goods received are logged; the log is reconciled to receipts input to the inventory management system that is
used to record movements of inventory in the financial records.
 Goods received are matched on-line or manually with purchase order details and/or invoices; long outstanding
goods receipt notes, purchase orders, and/or invoices are investigated timely and accrued as appropriate;
documents are canceled once matched or on payment of the invoice to prevent reuse.
 Management reviews recorded purchases (receipts of goods) based on its knowledge of day-to-day activity.
 Goods receipt vouchers (proof-of-delivery documentation) are prenumbered; the sequence of such vouchers is
accounted for.
 Goods received at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate period.
 Supplier invoices and credit notes received at, before, or after the end of an accounting period are scrutinized
and/or reconciled to ensure complete and consistent recording in the appropriate period.
REQUISITIONING MATERIALS
All transfers of raw materials to production are recorded accurately and in the appropriate
period.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.
 Inventories received, including transfers, are counted and compared to receipt or transfer documentation that is
used to record movements of inventory in the financial records by personnel in the area assuming responsibility
for the inventory and are recorded in the appropriate period.
 Raw materials received by production are logged; the log is reconciled to raw material movement reports that are
used to record movements of inventory in the financial records.
PRODUCING/COSTING INVENTORY
All recorded production costs are consistent with actual direct and indirect expenses associated
with production.
 When standard costing is used, management approves the standard costs and reviews variances between actual
and standard costs. Significant variances are investigated and adjustments to inventory and cost of sales are
approved by management.
 When actual costing is used, costs associated with raw materials, labor, and overhead are independently
reconciled to appropriate supporting records.
 When actual costing is used, management reviews actual costs based on their knowledge of day-to-day activities.
All direct and indirect expenses associated with production are recorded as production costs.
 When standard costing is used, management approves the standard costs and reviews variances between actual
and standard costs. Significant variances are investigated and adjustments to inventory and cost of sales are
approved by management.
 When actual costing is used, costs associated with raw materials, labor, and overhead are independently
reconciled to appropriate supporting records.
 When actual costing is used, management reviews actual costs based on their knowledge of day-to-day activities.
All direct and indirect expenses associated with production are recorded accurately and in the
appropriate period.
 When standard costing is used, management approves the standard costs and reviews variances between actual
and standard costs. Significant variances are investigated and adjustments to inventory and cost of sales are
approved by management.

19
Control Activities – Inventory Management

 When actual costing is used, costs associated with raw materials, labor, and overhead are independently
reconciled to appropriate supporting records.
 When actual costing is used, management reviews actual costs based on their knowledge of day-to-day activities.
All transfers of completed units of production to finished goods inventory are recorded
completely and accurately in the appropriate period.
 Finished goods sent to the warehouse are logged; the log is used to ensure that all finished goods are recorded in
the inventory records.
All defective products and scrap resulting from the production process are valid and recorded
completely and accurately in the appropriate period.
 Rejected work in progress is adequately segregated from other work in progress and is monitored to ensure it is
scrapped or reworked on a timely basis.
 Management, based on their knowledge of day-to-day activities, reviews records of scrapped and reworked items
and checks whether such items have been correctly identified and properly recorded in the appropriate accounting
period.
HANDLING FINISHED PRODUCTS
Finished goods received from production and returned by customers are recorded completely
and accurately in the appropriate period.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.
 Goods received are logged; the log is reconciled to receipts input to the inventory management system that is
used to record movements of inventory in the financial records.
 Goods received at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate period.
 Inventories received, including transfers, are counted and compared to receipt or transfer documentation that is
used to record movements of inventory in the financial records by personnel in the area assuming responsibility
for the inventory and are recorded in the appropriate period.
Goods received from production or returned by customers are only accepted in accordance with
the organization’s policies.
 Quality control inspections are performed for finished goods returned by customers and/or received from
production to assess whether such goods should be returned to inventory, reworked, or scrapped.
SHIPPING FINISHED PRODUCTS
All shipments are recorded.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.
 Management reviews relevant sales, accounts receivable, costs of sales, and inventory reports related to order
entry, shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted
upon.
 Sales order entry, shipping, and invoice processing are performed by an integrated application system. The
general ledger is automatically updated for shipping and invoicing transactions.
 Delivery notes are sequentially numbered; the sequence of delivery notes processed is accounted for.
 Orders are sequentially numbered. The sequence of orders processed is accounted for.
 Shipments of goods to customers are logged. The log is used to ensure that all shipments are invoiced and that
all invoices are recorded.
Shipments are recorded accurately.
 Physical inventory is counted periodically by persons independent of day-to-day custody and recording of
inventory. Inventory counts are reconciled to inventory records and inventory records are reconciled to the
general ledger.
 Management reviews relevant sales, accounts receivable, cost of sales, and inventory reports related to order
entry, shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted
upon.
 Data input to the invoicing subsystem is compared to priced order and shipment data per the separate,
nonintegrated order entry and/or shipping applications; differences require management approval before invoices
can be processed.
Shipments are recorded timely and in the appropriate period.
 Physical inventory is counted periodically by persons independent of day-to-day custody or recording of inventory.
Inventory counts are reconciled to inventory records and inventory records are reconciled to the general ledger.

20
Control Activities – Inventory Management

 Goods shipped at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate accounting period, including the raising and recording of the
related invoice.
Inventory is relieved only when goods are shipped with approved customer orders.
 Before goods are shipped, the details of the approved order are compared to actual goods prepared for shipment
by an individual independent of the order picking process.
 Security personnel monitor all incoming and outgoing vehicles and ensure all goods leaving the premises are
accompanied by duly completed documentation.
Costs of shipped inventory are transferred from inventory to cost of sales.
 Management reviews relevant sales, accounts receivable, cost of sales, and inventory reports related to order
entry, shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted
upon.
Costs of shipped inventory are recorded accurately.
 Management reviews relevant sales, accounts receivable, cost of sales, and inventory reports related to order
entry, shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted
upon.
IM5035 Amounts posted to cost of sales represent those associated with shipped inventory.
 Management reviews relevant sales, accounts receivable, cost of sales, and inventory reports related to order
entry, shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted
upon.
Costs of shipped inventory are transferred from inventory to cost of sales timely and in the
appropriate period.
 Management reviews relevant sales, accounts receivable, cost of sales, and inventory reports related to order
entry, shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted
upon.
MAINTAINING INVENTORY MASTER FILE
All valid changes to the inventory management master file are input and processed.
 Inventory master file data is periodically reviewed by management for accuracy and ongoing pertinence.
 Requests to change inventory master file data are logged; the log is reviewed to ensure that all requested
changes are processed timely.
 Requests to change inventory master file data are submitted on prenumbered forms; the numerical sequence of
such forms is accounted for to ensure that all requested changes are processed timely.
 List prices of composed products are automatically calculated based on the list prices of components of such
products.
Changes to the inventory management master file are accurate.
 Inventory master file data is periodically reviewed by management for accuracy and ongoing pertinence.
 Recorded changes to inventory master file data are compared to authorized source documents to ensure that they
were input accurately.
 List prices of composed products are automatically calculated based on the list prices of components of such
products.
 Inventory master file input data is edited and validated; identified errors are corrected promptly.
Inventory management master file remains pertinent.
 Inventory master file data is periodically reviewed by management for accuracy and ongoing pertinence.
 The salability of finished goods and usability of raw materials are assessed regularly, including a review during
physical inventory counts.

21
Control Activities – Payroll and Personnel

PAYROLL AND PERSONNEL – example of control activities

HIRING PERSONNEL
Additions to the payroll master files represent valid employees.
 Departmental managers periodically review listings of current employees within their departments and notify the
personnel department of necessary changes.
 Recorded changes to the payroll master files are compared to authorized source documents to ensure that they
were input accurately.
Significant changes to the payroll master files are approved by management.
All new employees are added to the payroll master files.
 Departmental managers periodically review listings of current employees within their departments and notify the
personnel department of necessary changes.
 Requests to change the payroll master file data are logged; the log is reviewed to ensure that all requested changes
are processed timely.
TERMINATING PERSONNEL
Terminated employees are removed from the payroll master files.
 Departmental managers periodically review listings of current employees within their departments and notify the
personnel department of necessary changes.
 Requests to change the payroll master file data are logged; the log is reviewed to ensure that all requested changes
are processed timely.
Employees are only terminated within statutory and union requirements.
 Compliance with employee termination policies and procedures, including compliance with statutory regulation and
union requirements, is monitored by management.
 Management monitors compliance with all significant policies concerning personnel and compensation. All
exceptions to personnel and compensation policies and procedures noted are raised to the appropriate level within
the entity and pursued to proper resolution.
Deletions from the payroll master files represent valid terminations.
 Departmental managers periodically review listings of current employees within their departments and notify the
personnel department of necessary changes.
 Recorded changes to the payroll master files are compared to authorized source documents to ensure that they
were input accurately.
 Significant changes to the payroll master files are approved by management.
RECORDING TIME
Time and attendance data recorded reflects actual time worked and is authorized.
 Salary and hourly payroll reports (including compensation and withholding information) are reviewed and approved
by management prior to disbursement.
 Time recording and attendance exceptions based on expectations established by management are identified,
monitored, and corrected.
 Overtime hours worked and payments for such overtime are authorized by management for all salaried employees
who are paid for overtime.
 Hourly employees record time worked using a time clock; employee time cards are approved by management.
All time worked is input.
 Time reported by employees is reconciled regularly between clock cards/timesheets and payroll reports.
 All payroll queries are followed up by persons independent of the payroll preparation and disbursement process.
 Time cards are batched for data entry and batch input data (hash totals) is balanced; out-of-balance batches are
corrected promptly.
Time worked is accurately input and processed.
 Time reported by employees is reconciled regularly between clock cards/timesheets and payroll reports.
 Time cards are batched for data entry and batch input data (hash totals) is balanced; out-of-balance batches are
corrected promptly.
 Payroll input data is edited and validated; identified errors are corrected promptly.
Time worked is processed timely.
 Time reported by employees is reconciled regularly between clock cards/timesheets and payroll reports.
 Compliance with the payroll disbursement processing schedule is monitored by management.

22
Control Activities – Payroll and Personnel

CALCULATING PAYROLL
Payroll is recorded in the appropriate period.
 Payroll transactions at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate accounting period.
 Compliance with the payroll disbursement processing schedule is monitored by management.
Payroll (including compensation and withholdings) is accurately calculated and recorded.
 Salary and hourly payroll reports (including compensation and withholding information) are reviewed and approved
by management prior to disbursement.
 Standard programmed algorithms perform significant payroll calculations.
 Overtime hours worked and payments for such overtime are authorized by management for all salaried employees
who are paid for overtime.
 The detailed payroll records show all pertinent data describing the payroll (including total compensation, related
income taxes, and other withholdings) and the related balances are reconciled, in a timely manner, to corresponding
general ledger accounts or entries by persons who do not have unrestricted access to cash. All reconciling items
are investigated and cleared on a timely basis.
Payroll related accruals/provisions reflect the existing business circumstances and economic
conditions in accordance with the accounting policies being used.
All payroll suspense accounts are reconciled and reviewed by management or other supervisory personnel on a
timely basis. Transactions recorded in the payroll suspense accounts are proper suspense items; other items are
 investigated and resolved in a timely manner.
DISBURSING PAYROLL
Payroll disbursements and recorded payroll expenses relate to actual time worked.
 Salary and hourly payroll reports (including compensation and withholding information) are reviewed and approved
by management prior to disbursement.
 Time reported by employees is reconciled regularly between clock cards/timesheets and payroll reports.
 Overtime hours worked and payments for such overtime are authorized by management for all salaried employees
who are paid for overtime.
Payroll is disbursed to appropriate employees.
 All payroll queries are followed up by persons independent of the payroll preparation and disbursement process.
 Access to the payroll bank transfer tape is restricted to authorized personnel.
 Employees sign for cash received; compliance is monitored by management.
MAINTAINING PAYROLL MASTER FILES
All valid changes to the payroll master files are input and processed.
 Departmental managers periodically review listings of current employees within their departments and notify the
personnel department of necessary changes.
 Requests to change the payroll master file data are logged; the log is reviewed to ensure that all requested changes
are processed timely.
 Requests to change the payroll master file data are submitted on prenumbered forms; the numerical sequence of
such forms is accounted for to ensure that all requested changes are processed timely.
Changes to the payroll master files are accurate.
 Departmental managers periodically review listings of current employees within their departments and notify the
personnel department of necessary changes.
 Recorded changes to the payroll master files are compared to authorized source documents to ensure that they
were input accurately.
 Payroll master file data is edited and validated; identified errors are corrected promptly.
Payroll master files data remains pertinent.
 Payroll master file data is periodically reviewed for accuracy and ongoing pertinence.
 Departmental managers periodically review listings of current employees within their departments and notify the
personnel department of necessary changes.
 Variations between payroll master files and the time recording system are investigated and appropriate action taken
if necessary.

23
Control Activities – Revenue

REVENUE CYCLE – example of control activities

MANAGING AND PROCESSING ORDERS
Orders are only processed within approved customer credit limits.
 Orders are not processed if the customer’s credit limit will be exceeded.
 Customers’ financial position and creditworthiness are monitored.
 Customers are assigned credit limits based on an assessment of their creditworthiness and ability to pay for goods
or services.
Orders are approved by management as to prices and terms of sale.
 Sales orders and/or invoices terms and prices are based on an approved price list. Exceptions to standard pricing
and discounts require specific management approval. Overrides of standard pricing and terms are reported and
investigated by management.
 Significant or unusual sales orders are specifically approved by management as to prices and terms.
Orders and cancellations of orders are input accurately.
 Customers enter and/or cancel orders automatically using EDI protocols.
 Recorded orders and cancellations are confirmed with customers.
 Recorded order entry and order cancellation data is compared to source documents by an individual who is
independent of the order entry process.
Order entry data is transferred completely and accurately to the shipping and invoicing activities.
 Data transferred from the order entry subsystem to the shipping and invoicing subsystems is balanced; identified
errors are corrected promptly.
 Orders are sequentially numbered. The sequence of orders processed is accounted for.
All orders received from customers are input and processed.
 Customers enter and/or cancel orders automatically using EDI protocols.
 Orders are sequentially numbered. The sequence of orders processed is accounted for.
 Recorded orders and cancellations are confirmed with customers.
 Order entry transactions are batched and batch input data is balanced; out-of-balance batches are corrected
promptly.
Only valid orders are input and processed.
 Customers enter and/or cancel orders automatically using EDI protocols.
 Recorded orders and cancellations are confirmed with customers.
 Management reviews relevant sales, accounts receivable, cost of sales, and inventory reports related to order entry,
shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted upon.
INVOICING, SALES RETURNS AND ADJUSTMENTS
Invoices are generated using authorized terms and prices.
 Data input to the invoicing subsystem is compared to priced order and shipment data per the separate,
nonintegrated order entry and/or shipping applications; differences require management approval before invoices
can be processed.
 Sales orders and/or invoice terms and prices are based on an approved price list. Exceptions to standard pricing
and discounts require specific management approval. Overrides of standard pricing and terms are reported and
investigated by management.
 The system maintains both current and prior approved prices. Orders and invoices are priced using the price in
effect at the time of order placement or shipment, depending on the organization’s policies and procedures.
Significant or unusual sales orders are specifically approved by management as to prices and terms.
Invoices are accurately calculated and recorded.
 Invoices and/or sales orders are automatically priced by the application system, using standard programmed
algorithms, including the calculation of discounts, if applicable.
 Pricing of recorded invoices, including discounts applied, is independently recalculated.
 Invoice and credit note data is edited and validated; identified errors are corrected promptly.
Credit notes and adjustments to accounts receivable are accurately calculated and recorded.
 Management approves credit notes, bad debt write-offs, and other adjustments to accounts receivable.
 Management monitors the nature, volume, and amounts of recorded credit notes, write-offs, and other adjustments
to accounts receivable.
 Invoice and credit note data is edited and validated; identified errors are corrected promptly.

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Control Activities – Revenue

All goods shipped are invoiced.

 Data input to the invoicing subsystem is compared to priced order and shipment data per the separate,
nonintegrated order entry and/or shipping applications; differences require management approval before invoices
can be processed.
 Management reviews relevant sales, accounts receivable, cost of sales, and inventory reports related to order entry,
shipping, invoicing, and accounts receivable; significant unusual relationships are monitored and acted upon.
 Shipments of goods to customers are logged. The log is used to ensure that all shipments are invoiced and that all
invoices are recorded.
 Goods on consignment are confirmed regularly and the statements are reconciled to inventory records and general
ledger.
Credit notes for all goods returned and adjustments to accounts receivable are issued in
accordance with organization policy.
 A policy has been established regarding criteria for issuing credit notes; compliance with this policy is monitored.
 All returned goods are logged when received. The log details such items as customers, goods, defects, inspections,
and assessment by quality control. Return details per the log are compared to credit notes issued to ensure that
credit is issued in the correct period and in accordance with company policy.
Invoices relate to valid shipments.
 Data input to the invoicing subsystem is compared to priced order and shipment data per the separate,
nonintegrated order entry and/or shipping applications; differences require management approval before invoices
can be processed.
 Invoices are approved based on comparison to priced order and shipping source documents.
 Signed delivery notes (proof of delivery) are received from customers for all shipments made. The sequence of
signed delivery notes received from customers is accounted for.
All credit notes relate to a return of goods or other valid adjustments.
 A policy has been established regarding criteria for issuing credit notes; compliance with this policy is monitored.
 Credit notes are sequentially prenumbered; the sequence of credit notes is accounted for.
 All returned goods are logged when received. The log details such items as customers, goods, defects, inspections,
and assessment by quality control. Return details per the log are compared to credit notes issued to ensure that
credit is issued in the correct period and in accordance with company policy.
All invoices issued are recorded.
 Recorded sales, gross margins, and miscellaneous receipts are compared to budget regularly; management reviews
and approves significant variances.
 Shipments of goods to customers are logged. The log is used to ensure that all shipments are invoiced and that all
invoices are recorded.
 Invoices are sequentially prenumbered. The sequence of invoices processed is accounted for.
All credit notes issued are recorded.
 Credit notes are sequentially prenumbered; the sequence of credit notes is accounted for.
 Statements of customer accounts receivable are mailed periodically to customers.
Invoices are recorded in the appropriate period.
 Recorded sales, gross margins, and miscellaneous receipts are compared to budget regularly; management reviews
and approves significant variances.
 Goods shipped at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate accounting period, including raising and recording of the
related invoices.
Credit notes issued are recorded in the appropriate period.
 Credit notes are sequentially prenumbered; the sequence of credit notes is accounted for.
 Goods returned by customers at, before, or after the end of an accounting period are scrutinized and/or reconciled
to ensure complete and consistent recording in the appropriate accounting period.
Accounts Receivable reflect the existing business circumstances and economic conditions in
accordance with accounting policies being used.
 Management reviews and approves the allowance for doubtful debts.
PROCESSING CASH RECEIPTS
Cash receipts are recorded in the period in which they are received.
 Cash sales are recorded using a cash register. Customers are provided with a copy of the register receipt and total
daily receipts per the register are balanced to cash deposited to the bank.
 Shipment of goods ordered via EDI initiates an automatic draft withdrawal from the customer’s bank account.
 Bank statements are reconciled to the general ledger regularly.

25
Control Activities – Revenue

 Cash receipts at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure
complete and consistent recording in the appropriate accounting period.
 General ledger balances are reconciled to the accounts receivable subsidiary ledger and differences are resolved in
a timely manner.
Cash receipts data is entered for processing accurately.
 Cash sales are recorded using a cash register. Customers are provided with a copy of the register receipt and total
daily receipts per the register are balanced to cash deposited to the bank.
 Shipment of goods ordered via EDI initiates an automatic draft withdrawal from the customer’s bank account.
 Cash receipts input data is edited and validated; identified errors are corrected promptly.
 Cash receipts transactions are batched and batch input data is balanced; out-of-balance batches are corrected
promptly.
All cash receipts data is entered for processing.
 Cash sales are recorded using a cash register. Customers are provided with a copy of the register receipt and total
daily receipts per the register are balanced to cash deposited to the bank.
 Shipment of goods ordered via EDI initiates an automatic draft on the customer’s account.
 Customers are provided with a form acknowledging receipt of any cash payments (i.e., a cash receipt form) and
cash receipts forms are balanced to cash deposited to the bank. Cash receipt forms are sequentially prenumbered
and the sequence of such forms is accounted for.
 Cash receipts transactions are batched and batch input data is balanced; out-of-balance batches are corrected
promptly.
Cash receipts data is valid and is entered for processing only once.
 Cash sales are recorded using a cash register. Customers are provided with a copy of the register receipt and total
daily receipts per the register are balanced to cash deposited to the bank.
 Customers are provided with a form acknowledging receipt of any cash payments (i.e., a cash receipt form) and
cash receipts forms are balanced to cash deposited to the bank. Cash receipt forms are sequentially prenumbered
and the sequence of such forms is accounted for.
Cash discounts are accurately calculated and recorded
 Available cash discounts are automatically calculated by the application system using standard programmed
algorithms and established terms of sale.
 Management reviews the level of recorded discounts granted to customers.
Timely collection of accounts receivable is monitored.
 Collection procedures established by management for overdue accounts are performed as intended.
 Accounts receivable aging reports are prepared regularly and analyzed.
MAINTAINING CUSTOMER MASTER FILES
All valid changes to the customer master file are input and processed.
 Requests to change customer master file data are logged; the log is reviewed to ensure that all requested changes
are processed timely.
 Requests to change customer master file data are submitted on prenumbered forms; the numerical sequence of
such forms is accounted for.
Changes to the customer master file are accurate.
 Recorded changes to customer master file data are compared to authorized source documents or confirmed with
customers to ensure that they were input accurately.
 Customer master file input data is edited and validated; identified errors are corrected promptly.
Customer master file data remains pertinent.
 Customer master file data is periodically reviewed by management for accuracy and ongoing pertinence.
 Reports of customers who have not placed orders within a specified period of time are reviewed to ensure that
customer master file data remains pertinent.

26
Control Activities – Treasury

TREASURY CYCLE – example of control activities

BORROWING
Recorded debt represents a valid liability of the organization.
 The loan register is periodically reviewed by management for accuracy and ongoing pertinence.
 Additions, deletions, and other changes to the loan register are compared to the loan agreement to ensure that
they were input accurately.
 Management monitors compliance with all significant policies concerning borrowings. All exceptions to borrowing
policies and procedures noted are raised to the appropriate level within the organization and pursued to proper
resolution.
 All borrowing transactions are approved by management or the Board of Directors or committee thereof.
Borrowings are recorded accurately as to amounts and terms.
 The loan register is periodically reviewed by management for accuracy and ongoing pertinence.
 Additions, deletions, and other changes to the loan register are compared to the loan agreement to ensure that
they were input accurately.
All borrowings are recorded.
 Statements received from lenders are reconciled to the loan register and differences are acted upon.
 The loan register is periodically reviewed by management for accuracy and ongoing pertinence.
 Requests to change the loan register are logged; the log is reviewed to ensure that all requested changes are
processed timely.
 Requests to change the loan register are submitted on prenumbered forms; the numerical sequence of such forms
is accounted for to ensure that all requested changes are processed timely.
 Borrowings and related accounts in the general ledger are reconciled to the supporting detail and differences are
resolved in a timely manner. Management, independent employees, or internal auditors perform direct tests (other
than via analytical review) of the recording and reconciliation of borrowings and related accounts.
 All borrowing suspense accounts are reconciled and reviewed by management or other supervisory personnel on a
timely basis. Transactions recorded in the borrowing suspense accounts are proper suspense items; other items
are investigated and resolved in a timely manner.
Borrowings are recorded in the appropriate period.
 Statements received from lenders are reconciled to the loan register and differences are acted upon.
 The loan register is periodically reviewed by management for accuracy and ongoing pertinence.
 Requests to change the loan register are logged; the log is reviewed to ensure that all requested changes are
processed timely.
 Requests to change the loan register are submitted on prenumbered forms; the numerical sequence of such forms
is accounted for to ensure that all requested changes are processed timely.
 Borrowings and related accounts in the general ledger are reconciled to the supporting detail and differences are
resolved in a timely manner. Management, independent employees, or internal auditors perform direct tests (other
than via analytical review) of the recording and reconciliation of borrowings and related accounts.
 All borrowing suspense accounts are reconciled and reviewed by management or other supervisory personnel on a
timely basis. Transactions recorded in the borrowing suspense accounts are proper suspense items; other items
are investigated and resolved in a timely manner.
All interest is accurately calculated and recorded in the appropriate period.
 Statements received from lenders are reconciled to the loan register and differences are acted upon.
 Interest is calculated by an automated system.
 Calculations of interest expense are reviewed by management and/or independently reperformed.
 Borrowings and related accounts in the general ledger are reconciled to the supporting detail and differences are
resolved in a timely manner. Management, independent employees, or internal auditors perform direct tests (other
than via analytical review) of the recording and reconciliation of borrowings and related accounts.
Recorded loan repayments are valid.
 Statements received from lenders are reconciled to the loan register and differences are acted upon.
 The loan register is periodically reviewed by management for accuracy and ongoing pertinence.
 Borrowings and related accounts in the general ledger are reconciled to the supporting detail and differences are
resolved in a timely manner. Management, independent employees, or internal auditors perform direct tests (other
than via analytical review) of the recording and reconciliation of borrowings and related accounts.
All borrowing suspense accounts are reconciled and reviewed by management or other supervisory personnel on a
timely basis. Transactions recorded in the borrowing suspense accounts are proper suspense items; other items
 are investigated and resolved in a timely manner.

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Control Activities – Treasury

Loan repayments are accurately recorded.

 Statements received from lenders are reconciled to the loan register and differences are acted upon.
 The loan repayment schedule, including dates and amounts to be paid, is input to the system when the loan is
originally set up; the system automatically generates and records payments in accordance with this schedule.
 Additions, deletions, and other changes to the loan register are compared to the loan agreement to ensure that
they were input accurately.
 Loan repayment data is edited and validated; identified errors are corrected promptly.
 Borrowings and related accounts in the general ledger are reconciled to the supporting detail and differences are
resolved in a timely manner. Management, independent employees, or internal auditors perform direct tests (other
than via analytical review) of the recording and reconciliation of borrowings and related accounts.
 All borrowing suspense accounts are reconciled and reviewed by management or other supervisory personnel on a
timely basis. Transactions recorded in the borrowing suspense accounts are proper suspense items; other items
are investigated and resolved in a timely manner.
All loan repayments are recorded.
 Statements received from lenders are reconciled to the loan register and differences are acted upon.
 The loan repayment schedule, including dates and amounts to be paid, is input to the system when the loan is
originally set up; the system automatically generates and records payments in accordance with this schedule.
 Management anticipates scheduled loan repayments, which are reviewed to ensure that all payments are made
and recorded accurately and timely.
 Borrowings and related accounts in the general ledger are reconciled to the supporting detail and differences are
resolved in a timely manner. Management, independent employees, or internal auditors perform direct tests (other
than via analytical review) of the recording and reconciliation of borrowings and related accounts.
Loan repayments are recorded in the appropriate period.
 Statements received from lenders are reconciled to the loan register and differences are acted upon.
 The loan repayment schedule, including dates and amounts to be paid, is input to the system when the loan is
originally set up; the system automatically generates and records payments in accordance with this schedule.
 Management anticipates scheduled loan repayments, which are reviewed to ensure that all payments are made
and recorded accurately and timely.
 Loan repayment transactions at, before, or after the end of an accounting period are scrutinized and/or reconciled
to ensure complete and consistent recording in the appropriate accounting period.
 Borrowings and related accounts in the general ledger are reconciled to the supporting detail and differences are
resolved in a timely manner. Management, independent employees, or internal auditors perform direct tests (other
than via analytical review) of the recording and reconciliation of borrowings and related accounts.
Loans are repaid in accordance with the terms of the loan.
 The loan repayment schedule, including dates and amounts to be paid, is input to the system when the loan is
originally set up; the system automatically generates and records payments in accordance with this schedule.
 Management anticipates scheduled loan repayments, which are reviewed to ensure that all payments are made
and recorded accurately and timely.
 Compliance with loan covenants is monitored by management.
The organization complies with loan covenants.
 Compliance with loan covenants is monitored by management.
 The loan repayment schedule, including dates and amounts to be paid, is input to the system when the loan is
originally set up; the system automatically generates and records payments in accordance with this schedule.
 Management anticipates scheduled loan repayments, which are reviewed to ensure that all payments are made
and recorded accurately and timely.
MANAGING CASH AND INVESTMENTS
Recorded investments represent assets of the organization.
 Investment transactions are reconciled/compared to third-party statements or documents of title. Statements
received for which no assets are recorded are investigated.
 Management reviews recorded investment purchases, sales, and maturities of investments based on knowledge of
day-to-day activity.
 Investment transaction order, confirmation, and settlement are separately input and are automatically matched by
the application system; discrepancies are followed up by an individual who is independent of transaction initiation.
 Where a formal investment policy exists, management monitors that all investment transactions are in compliance
with the policy.
Investment purchases, sales, and maturities are accurately recorded.
 Investment transactions are reconciled/compared to third-party statements or documents of title. Statements
received for which no assets are recorded are investigated.

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Control Activities – Treasury

 Management reviews recorded investment purchases, sales, and maturities of investments based on knowledge of
day-to-day activity.
 Investment transactions are edited and validated; identified errors are corrected promptly.
All investment transactions are recorded.
 Investment transactions are reconciled/compared to third-party statements or documents of title. Statements
received for which no assets are recorded are investigated.
 Management reviews recorded investment purchases, sales, and maturities of investments based on knowledge of
day-to-day activity.
 Investment transaction order, confirmation, and settlement are separately input and are automatically matched by
the application system; discrepancies are followed up by an individual who is independent of transaction initiation.
Investment transactions are recorded in the appropriate period.
 Investment transactions are reconciled/compared to third-party statements or documents of title. Statements
received for which no assets are recorded are investigated.
 Management reviews recorded investment purchases, sales, and maturities of investments based on knowledge of
day-to-day activity.
 Investment transactions at, before, or after the end of an accounting period are scrutinized and/or reconciled to
ensure complete and consistent recording in the appropriate accounting period.
All investment income is accurately calculated and recorded in the appropriate period.
 Investment transactions are reconciled/compared to third-party statements or documents of title. Statements
received for which no assets are recorded are investigated.
 Calculations of interest expense are reviewed by management and/or independently reperformed.
 Interest income is calculated by an automated system.
 Investment income is reconciled to third-party statements regularly and differences are acted upon.
 Management anticipates investment income, which is reviewed to ensure that all payments are received and
recorded timely.
 Calculations of investment income are reviewed by management and/or independently reperformed.
Loans and investments reflect the existing business circumstances and economic conditions in
accordance with the accounting policies being used.
Management periodically reviews the valuations and/or realizability of investments to identify fair value adjustments
 and to properly record such adjustments.
MANAGING DERIVATIVE TRANSACTIONS
Senior management has an understanding of the organization’s derivative activities.
Senior management has approved and communicated to the treasury function the organization’s policies and
procedures related to derivatives activities and monitors compliance, including monitoring the nature and volume of
 the derivative activities.
Recorded derivative transactions represent assets or liabilities of the organization.
 Management approves derivative transactions to ensure that they are valid and in compliance with the
organization’s policies and procedures.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Recorded or disclosed derivative transactions are independently reconciled to external records; discrepancies,
including non-receipt of counterparty confirmations, are promptly resolved by persons independent of the treasury
function.
Disclosed off-balance sheet derivative transactions represent valid transactions.
 Management approves derivative transactions to ensure that they are valid and in compliance with the
organization’s policies and procedures.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Recorded or disclosed derivative transactions are independently reconciled to external records; discrepancies,
including non-receipt of counterparty confirmations, are promptly resolved by persons independent of the treasury
function.
Derivative transactions are accurately recorded.
Management approves derivative transactions to ensure that they are valid and in compliance with the
 organization’s policies and procedures.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Derivatives input data is edited and validated; identified errors are corrected promptly.

29
Control Activities – Treasury

Disclosed off-balance sheet derivative transactions are properly presented.

 Management approves derivative transactions to ensure that they are valid and in compliance with the
organization’s policies and procedures.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Derivatives input data is edited and validated; identified errors are corrected promptly.
All derivative transactions are recorded in the financial statements.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Requests to change standing data are submitted on prenumbered forms; the numerical sequence of such forms is
accounted for to ensure that all requested changes are processed timely.
 Incoming counterparty confirmations are reconciled regularly to internal records by persons independent of the
treasury function; discrepancies are promptly resolved by persons independent of the treasury function.
 Reconciliations of general ledger accounts for derivative transactions are performed using subsidiary ledgers and
other documentation supporting the fair values of derivatives.
All off-balance sheet derivative transactions are disclosed in the financial statements.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Requests to change standing data are submitted on prenumbered forms; the numerical sequence of such forms is
accounted for to ensure that all requested changes are processed timely.
 Incoming counterparty confirmations are reconciled regularly to internal records by persons independent of the
treasury function; discrepancies are promptly resolved by persons independent of the treasury function.
Derivative transactions are recorded in the appropriate period.
 Management approves derivative transactions to ensure that they are valid and in compliance with the
organization’s policies and procedures.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Recorded or disclosed derivative transactions are independently reconciled to external records; discrepancies,
including non-receipt of counterparty confirmations, are promptly resolved by persons independent of the treasury
function.
 Incoming counterparty confirmations are reconciled regularly to internal records by persons independent of the
treasury function; discrepancies are promptly resolved by persons independent of the treasury function.
 Derivative transactions at, before, or after the end of an accounting period are scrutinized and or reconciled to
ensure complete and consistent recording in the appropriate accounting period.
Off-balance sheet derivative transactions are recorded in the financial statements in the
appropriate period.
 Management approves derivative transactions to ensure that they are valid and in compliance with the
organization’s policies and procedures.
 Management reviews summary reports of derivative transactions and balances based on their knowledge of the
day-to-day activity.
 Recorded or disclosed derivative transactions are independently reconciled to external records; discrepancies,
including non-receipt of counterparty confirmations, are promptly resolved by persons independent of the treasury
function.
 Incoming counterparty confirmations are reconciled regularly to internal records by persons independent of the
treasury function; discrepancies are promptly resolved by persons independent of the treasury function.
 Derivative transactions at, before, or after the end of an accounting period are scrutinized and or reconciled to
ensure complete and consistent recording in the appropriate accounting period.
All investment income on derivative transactions is accurately calculated and recorded in the
appropriate period.
 Calculations of interest income are reviewed by management and/or independently reperformed.
 Interest income is calculated by an automated system.
 Investment income is reconciled to third-party statements regularly and differences are acted upon.
 Management anticipates investment income, which is reviewed to ensure that all payments are received and
recorded timely.
 Derivative income is calculated by an automated system.
 Derivative income is reconciled to third-party statements regularly and differences are acted upon.
Management anticipates derivative income, which is reviewed to ensure that all payments are received and
 recorded timely.

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Control Activities – Treasury

All interest expense on derivative transactions is accurately calculated and recorded in the
appropriate period.
 Calculations of interest expense are reviewed by management and/or independently reperformed.
 Interest expense is calculated by an automated system.
 Interest expense is reconciled to third-party statements and differences are promptly resolved.
 Management anticipates interest expense, which is reconciled to the recorded expenses and reviewed to ensure
that recorded interest expenses are valid and recorded timely.
 Derivative transactions at, before, or after the end of an accounting period are scrutinized and or reconciled to
ensure complete and consistent recording in the appropriate accounting period.
 Calculations of interest expense on derivative transactions are reviewed by management and/or independently
reperformed.

31