AAT L4 Accounting Systems & Controls 1 — Questions and Answers
Question 1: An accounting system is effective when it:
- Uses the most expensive software available
- Processes transactions accurately and completely, providing reliable financial information for decision making and control (Correct answer)
- Produces the most detailed reports possible
- Minimises the number of staff in the finance function
Correct answer: Processes transactions accurately and completely, providing reliable financial information for decision making and control
An effective accounting system ensures transactions are captured accurately, completely, and in a timely manner, with appropriate controls to prevent errors and fraud — providing reliable information for management decisions and financial reporting.
Question 2: Segregation of duties as an internal control means:
- All financial duties are performed by one trusted person
- No single individual has control over all stages of a transaction, reducing the risk of fraud or error (Correct answer)
- Duties are separated between departments based on seniority
- The accounts team works in separate rooms
Correct answer: No single individual has control over all stages of a transaction, reducing the risk of fraud or error
Segregation of duties ensures that different people handle different stages of a transaction (e.g., authorising, recording, custodying assets) so that errors or fraud require collusion, which is harder to conceal.
Question 3: Which of the following is an example of a preventive control?
- Bank reconciliation performed monthly
- Reviewing management accounts for unusual items
- Requiring authorisation before a purchase order is raised (Correct answer)
- Investigating a budget overspend after the period end
Correct answer: Requiring authorisation before a purchase order is raised
Preventive controls stop errors or fraud before they occur — for example, requiring authorisation before a purchase is placed. Detective controls (like reconciliations and reviews) identify errors after they have happened.
Question 4: The audit trail in an accounting system enables:
- The preparation of the annual financial statements
- Tracing any transaction from its source document through to the final accounting records and vice versa (Correct answer)
- Calculating the tax liability automatically
- Generating automated payment runs
Correct answer: Tracing any transaction from its source document through to the final accounting records and vice versa
An audit trail provides a sequential record of every transaction and system change, enabling transactions to be traced from source documents (invoices, receipts) through journals and ledgers to the financial statements.
Question 5: A key risk associated with cloud-based accounting systems is:
- The inability to produce financial statements
- Dependence on internet connectivity and reliance on the provider's security measures to protect data (Correct answer)
- The high cost of hardware requirements
- The inability to process more than 100 transactions per day
Correct answer: Dependence on internet connectivity and reliance on the provider's security measures to protect data
Cloud systems rely on continuous internet access and on the service provider's security, backup, and recovery procedures; risks include data breaches, provider failure, and connectivity issues.
Question 6: The purchase order authorisation control ensures:
- Goods are only accepted from approved suppliers at the correct price
- Payments are made only to approved suppliers
- Only authorised staff can commit the business to spending through a formal approval before ordering (Correct answer)
- Invoices are matched to delivery notes
Correct answer: Only authorised staff can commit the business to spending through a formal approval before ordering
Purchase order authorisation requires a responsible manager to approve the order before it is placed, ensuring the business only commits to expenditure that has been properly sanctioned and budgeted.
AAT L4 Accounting Systems & Controls 1
An accounting system is effective when it: