Appendix 14A.

Appendix 14A Illustrative Audit Case: Keystone Computers \& Networks Inc. Part IV: Consideration of Internal Control This part of the audit case of Keystone Computers \& Networks Ine. (KCN) illustrates the nature of internal control over the acquisition cycle and the way in which auditors assess control risk for this cycle. The following working papers are included: - A flowchart description of the acquisition cycle of the company and the related controls prepared by the staff of Adams, Barnes \& CO. (ABC), CPAs. This flowchart focuses on the (accounting) information system and control activities. - ABC's working paper for the assessment of control risk for accounts payable and purchases as it would appear before any tests of controls are performed. This working paper identifies the prescribed controls and weaknesses for the revenue cycle. It also relates the controls and weaknesses to the various financial statement assertions about accounts payable and purchases. You should read through the information to obtain an understanding of typical controls for this cycle. You also may wish to review the planning documentation presented in Appendix 6C to refresh your knowledge about the nature of the company's business and its environment. The Control Environment, Risk Assessment, Monitoring Questionnaire, and Organizational Chart of KCN in Appendix 11A can be used to help refresh your memory about these components of internal control. KEYSTONE COMPUTERS \& NETWORKS INC. Assessment of Control Risk-Acquisition Cycle 12/31/5 KEYSTONE COMPUTERS \& NETWORKS INC. Internal Control-Acquisition Cycle 12/31/5 page 670 Appendix 14A Problems Required: LO141,3,5,6 14A-1. A summary of the controls for the acquisition cycle of Keystone Computers \& Networks, Inc., appears in Appendix 14A. a. For the following three controls over the acquisition cycle, indicate one type of error or fraud that the control serves to prevent or detect. Organize your solution as follows: Control Error or Fraud Controlled 1. Computer matches information from vendors' invoice with purchase order and receiving data. 2. The computer assigns numbers to receiving reports. 3. Checks are mailed by check signer. b. For each of the controls described above, indicate how the auditors could test the control. Organize your answer as follows: Control Tests of Controls 1. Computer matches information from vendors' invoice with purchase order and receiving data. 2. The computer assigns numbers to receiving reports