Create an internal controls report based on Generally Accepted Auditing Standards. Include the following:

Type of audit report to be communicated to clientTitleClient informationIntroductory paragraphAuditor$$s opinionBasis of the opinion

Client$$s responsibilityAuditor$$s responsibility

Critical audit matters

Internal Control Test Results

Result #$1$

The audit team concluded that, at an entity level, there is sufficient evidence that Cloud$9$s internal controls are potentially effective. At a high level, the company demonstrates an environment where potential material misstatements are prevented or detected.

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Specific controls that affect transaction processes will be documented in more detail. Items to include:

$$ Cloud$9$ has a tightly structured system of performance reviews. Managers at each level must report financial and operating performance against budgets at regular intervals.

$$Higher$-$level managers can access information about activities within their area of responsibility for monitoring purposes through the information system.

$$ Losses at retail stores have been contained following the installation of additional security, including cameras.

$$ Testing showed a thorough approach to appropriate segregation of duties.

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Result #$2$

Tests of controls show that IT general controls are effective. As a result, application controls can be relied upon for their financial applications.$$ Testing of the application controls showed operational effectiveness.

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Result #$3$

Javier and Cheyenne are pleased with the results of tests of controls related to the purchasing process. They found strong controls over the master vendor file, and vouchers are prepared based only on original invoices. Cloud$9$ is very careful about entering the right invoice number, including any leading zeros, so an invoice is not paid twice. $$Finally$,$ under David Collier$$s direction, Cloud$9$ developed clear procedures for accruing payables for goods received in the warehouse for which vendor invoices had not yet arrived.

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Other Test Results

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Result # $1$

Cloud$9$s lawyers state that there are no pending legal issues, so there is nothing we need to emphasize in that area. Cloud$9$ has had a decline in earnings this year, but that does not represent a growing concern. There are no consistency issues with Cloud$9$s application of accounting principles. So$,$ we do not need to add an emphasis$-$of$-$matter paragraph to this year$$s audit report.

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Result #$2$

Cloud$9$ opened its first retail store which brings new inherent risks, such as the risk of theft of inventory, increased sales returns, and exposure to risk associated with leasing premises and equipment. Cloud$9$ must design internal controls for a retail location that are different from its wholesale operations. These risks are not material to Cloud$9$s overall operations.