You have been assigned to work on your firm’s largest client, DOMO Electronics, a publicly traded company with operations in North and South America, Europe, and Asia. In your process of evaluating ICFR, your audit program instructs you to evaluate DOMO Electronics’ Control Environment, a major component of COSO’s Internal Control Framework. In your evaluation you have found the following:
DOMO Electronics has a written code of conduct that it requires all employees to understand and follow. Based on this mandate it has never had any ethical conflicts reported and therefore does not have a formal mechanism for top management or the BOD to receive confidential information from employees lower in the organizational hierarchy.
All of DOMO’s staff are required to complete a certain amount of continuing education credits every year. From what you can see, they seem to be well trained at their tasks, or at least they stay very busy.
The Board of Directors and Audit Committee consist of several financially savvy individuals who take their jobs very seriously. Furthermore, all members of its Audit Committee are top managers in the company, so they are intimately familiar with the company’s operations.
Management stresses an ethical environment. In their weekly meetings each team reports its operating results and the different teams quiz each other and respond with solutions and challenges. In the weekly meetings management encourages the teams to act ethically while achieving their mandatory year-over-year, 40% revenue growth numbers.
Due to high industry growth, DOMO has enhanced its market share largely by significant mergers and acquisitions. To keep up with its growth, DOMO is constantly upgrading its internal control system. Fortunately, the well trained staff have been able to continue testing the new programs after they are put in place and change programming problems as they crop up/
The human resource department ensures that workers are assigned to work that they are capable of doing and ensures that every employee understands his/her responsibilities.

a. What “red flags” do you see in the above description concerning DOMO’s control environment?
b. What accounts and financial statement management assertions might ultimately be affected if the red flags indicate problems?
c. Develop an audit step you would use to follow up on the concern raised by the red flags.

  • CreatedJanuary 21, 2015
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