Page 291 - COSO Guidance Book

A more reliable method for completion of an ICQ might be to wait until after the system has been tested.
System tests provide evidence whether the system description obtained through inquiry, observation, and
walk-throughs is actually being practiced. However, information noted in the questionnaire may affect the
planned test work and should be considered in that manner.

ICQ issues

Some critics of ICQs note that the questionnaires do not address the sequence of procedures and might
not include all relevant questions or classify controls as preventive or detective. Additionally, ICQs
typically contain no open-ended questions.

It is important to document the sequence of procedures because a control might be present and the
auditor might conclude the control is good and the system is functioning properly when, in fact, the
system is dysfunctional. For example, a CPA student received a fellowship from a large CPA firm while
pursuing studies at a university. The fellowship check was sent directly to the university each fall. The
student attended summer school prior to the fall semester and received an invoice in early June for
summer school tuition. The invoice was paid on receipt. The student went to the university bursar in the
fall semester to obtain his fellowship check. The university stated that the check would not be issued
until the summer school tuition had been paid.

Somewhat confused, the student went home, found the cancelled check for the summer school tuition,
and presented the document to the university bursar. An investigation was launched and it was
discovered that the university sent invoices out at the first of the month but did not update the subsidiary
accounts receivable (debit to the student accounts receivable) for the invoice until the end of the month.
Because the student paid the invoice on receipt, the university credited unapplied cash and then debited a
subsidiary student account for all unapplied cash. This student, whose last name started with “Z,” was
the last one listed in the subsidiary accounts receivable. All unapplied cash was applied to this student’s
account; he had a credit balance in his subsidiary account receivable of more than $50,000. The first
student suggested that the university contact this other student and pay him that amount because a
credit in accounts receivable is, in reality, a payable. The university did not comply.

If an ICQ was being completed, there would be a lot of Yes answers providing an indication that the
university cash-receipts system and posting to subsidiary accounts receivable was a sound system. For
example, an ICQ would have questions such as the following for a cash-receipts system:

1. Are cash receipts deposited, in fact, daily?
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2. Are invoices posted to the subsidiary accounts receivable on a timely basis?
3. Are cash receipts reconciled daily with postings to the subsidiary accounts-receivable ledger and the
deposit to the bank?

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The bursar’s office answered Yes to this question.

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