Significant class of transactions/significant disclosure process name:| Credit origination - Transaction processing| | Significant class of transactions/ significant disclosure process owner:| Credit Policty at HODebt management division Client Division | |
We obtain an understanding of the significant classes of transactions (SCOTs) and significant disclosure processes to identify and understand the risks of material misstatement at the assertion level (i.e., what can go wrongs (WCGWs)) and, when applicable, to identify and understand the controls over the WCGWs.
This template assists with completing S03 Understand significant classes of transactions and significant disclosure processes.
* Significant accounts affected and key business and financial statement risks related to these accounts: * Loan Acc * Interest Acc * Provision Acc * Expense Acc * Receivable Acc| Relevant assertions: * Valuation * Completeness * Right and Obligation * Presentation and Disclosure * Existence | Nature of the SCOT (routine, non-routine, estimation): * Routine| Starting point (initiation) and timing of initiation and recording of the SCOT or significant disclosure process: * Customer’s application| Specific circumstances affecting the form and extent of the documentation: * None| Name of the IT application that supports the SCOT * |
Inputs/outputs of the critical path of significant class of transactions/significant disclosure process| Inputs/outputs of the supporting IT application| Inputs: * | Inputs: * |
Outputs: * | Outputs: * |
Critical path (initiating, recording, processing, reporting, correcting incorrect information) We obtain an understanding of the SCOTs and the significant disclosure processes by obtaining an understanding of their critical path. The critical path includes: * Initiation: the point where the transaction first enters the entity’s process and is prepared and submitted for recording * Recording: the point where the transaction is first recorded in the books and records of the entity * Processing: any changes, manipulation or transfers of the data in the books and records of the entity * Reporting: the point where the transaction is reported (i.e., posted) in the general ledger. When we obtain an understanding of the critical path, we obtain an understanding of how incorrectly processed information is detected and corrected on a timely basis. We also obtain an understanding of how transactions are accumulated and posted from the sub ledger to the general ledger, including controls over associated journal entries. We obtain an understanding of the policies and procedures in place that management uses to determine that directives are carried out and applied, including: * Authorization
* Segregation of incompatible duties
* Safeguarding of assets
* Information processing
* Performance reviews
We use our understanding of the critical path and the policies and procedures to identify WCGWs and, when applicable, relevant controls. In the course of acquiring an understanding of the processing procedures, we frequently learn of many of the controls in use. Thus, while the emphasis at this point is not to identify the presence or absence of controls, we are alert to the possible absence of controls, and to the points at which errors could occur and controls are needed. We consider the effect IT has on the SCOTs and the significant disclosure processes. The manner in which we document our understanding of the SCOT or significant disclosure process is left to professional judgment of the engagement executives. However, for critical paths related to routine transactions, a graphical depiction of the flow (e.g., flowchart), supported with narrative notes (e.g., use of this template) normally provides for...