The CPA firm Hank and Henry LLP is performing its first integrated audit of their recently acquired public client Wigly Corporation. Wigly has been in existence for 10 years. Wigly Corporation has two branch locations and has a monthly performed management review control of having the controller at each location test the existence, completeness and valuation for various general and administrative expense accounts. Each month the controller of each branch compares the month’s recorded expenses with the total for the preceding year. Any differences greater than 15% are investigated by the controller who then summarizes the branch expense report and forwarding it to the corporate chief financial officer. The report summarizes resolved and any unresolved issues. You are reviewing the work of your subordinate. Related documentation indicates that the subordinate: 1. Obtained an understanding of the procedure through an interview with the CFO. 2. Selected a sample of monthly reports from each branch and 1. Recalculated changes. 2. Considered the results of any changes for greater than 15%. No exceptions were noted and a conclusion was arrived at that the control has been placed in operation and is operating effectively.
Provide overall comments as to the adequacy of the above procedures. What questions do you believe need to be answered prior to concluding on effectiveness of the control?