360-Exercice Quiz 2-DL-Corrected

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Quiz 1 Review-JMAS ACCO 360 Danny Lam In collaboration with Jade Pontbriand Chapter 9: Control Risk Assessment Question 1: Ex 9-24 Each situation presents a control and a way to test the control. Evaluate the efficiency of the test of controls. Control: Prior to the sales staff processing an order, the customer’s credit must be reviewed by a supervisor, who completes and signs a “Customer Credit Review” form. Test of Control: Select a sample of sales orders and review payment supporting documents (i.e., bank statements) to determine if the customers ended up paying for the order. This procedure is good, but it doesn’t review the customer’s credit. To test this control, we should take a sample of the orders and make sure the credit review form was signed off by a supervisor. Control: At the end of each month, the accounts receivable (A/R) supervisor prepares the aged A/R list. The list is reviewed by the A/R manager, who must sign off on it. Test of Control: Enquire of the A/R supervisor how the aged A/R list is used to calculate the allowance for doubtful accounts. No, the procedure is good since you do want to inquire to understand how AFDA was calculated. However, we are not trying to do this now. To do this, we should take the list and look for the sign-off by the manager. Control: At the end of each day, warehouse staff submit all unfulfilled customer orders to their supervisor. Only the supervisor is authorized to cancel unfulfilled customer orders in the company’s financial system. Test of Control: Request warehouse staff to log into the financial system and attempt to cancel an unfulfilled customer order.

Yes! This is a good procedure to verify the control. Control: Employees responsible for shipping are separate from the employees responsible for accepting and processing the sales orders. Test of Control: Obtain HR files of employees who work in the shipping department and review whether they ever worked in the sales orders department. Review whether employees working in the sales order department ever worked in the shipping department. At first, it sounds good to verify the segregation of duty control. However, if HR documentation says that they shouldn’t be working in one department, doesn’t mean they aren’t. A better way of doing this is by observation and inquiry with people working in these departments and management. Observe who is working in the shipping department and those who work in the department responsible for accepting sales orders to see if they are the same person. Talk to management and see if they confirm who works where. Control: The quantities on the order delivery note are checked by the warehouse manager against the actual quantities prior to shipment. The manager stamps “Good To Go” on the delivery note for each checked order Test of Control: For a sample of orders that were shipped, obtain delivery notes and check if they were stamped. Yes, the stamp delivery is our evidence that the warehouse manager checked the items prior to shipment. Control: All blank cheques are stored and locked in a safe. Only the CFO and the Finance Manager know the code to the safe. Test of Control: Confirm with the CFO and the Finance Manager that they always keep the safe locked and that the code to the safe contains at least six numbers. Not the best way to test this. An inquiry could be good but ask if they’ve shared the code with somebody else. Also, go visit the office and see if there are any blank cheques outside the safe.

Question 2: Ex 9-26 Based upon the case facts, indicate whether the type of control risk—pervasive risk (impacts entire financial statements) or a risk at the assertion level (if so, which account and assertions are affected)—and the impact on control risk (whether the factor increases or decreases control risk) There have been a number of discrepancies in the company’s cash balance. One of the managers suspects that Dominic (the CFO’s cousin) may be removing cash on Friday afternoons. The manager, however, is afraid of “getting in trouble” with the CFO if she confronts Dominic about this issue. ● Type of control risk: Pervasive ● the situation suggests that the CFO creates an environment where management is simply scared of the CFO. They are afraid to discuss something very important and serious. Therefore, as an auditor, I would say is not only about the cash account but also about the tone at the top. ● This increases control risk: very concerning a fraud situation The company’s controller is a very detailed and rules-oriented individual. Last month, she fired an employee from the accounting department who did not complete bank reconciliations on time. ● Type of control risk: pervasive ● Shows that the controllers are a really harsh people, but they take procedures very seriously ± so this reduces the control risk ● Bank reconciliation is a cash issue, but this scenario demonstrates that the controller cares much about procedures in general ● Decreases control risk The new head of purchasing has added six new vendors to the approved vendor list within the first two months of employment. Since the vendors offer products and services at much lower prices compared to other vendors, the CFO did not bother with the usual new vendor verification process. ● Type of control risk: pervasive ● CFO is very interested in getting a good deal. From an auditor’s standpoint, the CFO did not follow the vendor verification procedures, so this is a concern for us. CFO doesn’t follow procedures as long as the CFO thinks not following procedures will allow making money: this is a bad sign. ● Increases control risk

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