Question

Following are three examples of controls for accounts that you have deter-mined are significant for the audit of ICFR. For each control, determine the nature, timing, and extent of testing of the design and operating effectiveness. Refer to Exhibit 7– 3 for a way to format your answer.
Control 1. Monthly Manual Reconciliation: Through discussions with entity personnel and review of entity documentation, you find that entity personnel reconcile the accounts receivable subsidiary ledger to the general ledger on a monthly basis. To determine whether misstatements in accounts receivable (existence, valuation, and completeness) would be detected on a timely basis, you decide to test the control provided by the monthly reconciliation process.

Control 2. Daily Manual Preventive Control: Through discussions with entity personnel, you learn that entity personnel make a cash disbursement only after they have matched the vendor invoice to the receiving report and purchase order. To determine whether misstatements in cash ( existence) and accounts payable ( existence, valuation, and completeness) would be pre-vented on a timely basis, you decide to test the control over making a cash disbursement only after matching the invoice with the receiving report and purchase order.
Control 3. Programmed Preventive Control and Weekly Information Technology–Dependent Manual Detective Control: Through discussions with entity personnel, you learn that the entity’s computer system performs a three- way match of the receiving report, purchase order, and invoice. If there are any exceptions, the system produces a list of unmatched items that employees review and follow up on weekly. The computer match is a programmed application control, and the review and follow- up of the unmatched items report is a manual detective control. To determine whether misstatements in cash (existence) and accounts payable– inventory ( existence, valuation, and completeness) would be prevented or detected on a timely basis, you decide to test the programmed application control of matching the receiving report, purchase order, and invoice, as well as the review and follow- up control over unmatched items.



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  • CreatedSeptember 22, 2014
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