I - Approach for Internal Control Assessment

A logical approach to the assessment of internal control is to imagine what types of errors could occur with regards to each significant class of transactions. Assume a company has the significant classes of transactions listed below.

1. Credit sales transactions

2. Raw materials purchase transactions

3. Payroll transactions

4. Equipment acquisition transactions

5. Cash receipt transactions

6. Leasing transactions

7. Dividend transactions

8. Short-term investment transactions

Requirement:

For each one, identify one or more errors that could occur and name the accounts that would be affected if proper controls were not specified or followed satisfactorily.

II The following are internal control weaknesses found in the purchases and payment process of your auditee, Metric Tools, Inc.:

Control Weakness 1

The purchasing clerk does not verify that the purchase requisitions (PR) are authorized by an appropriate person in the operating department but only checks that there is a signature on the document.

Control Weakness 2

Access to the warehouse is not controlled and anyone can enter and leave at any time.

Control Weakness 3

The receiver does not match the bill of lading (BL) to an authorized purchase order (PO).

Requirement:

For each control weakness:

a. Describe the control risk that exist because of the weakness what could go wrong?

b. Explain whether a monetary financial statement misstatement could result because of the weakness, and, if so, what it would be.

c. Describe in detail the impact the weakness would have on your other audit procedures.

III Control Tests and Risks of Misstatements

The questions below are taken from an internal control questionnaire. For each question, state (i) one control test you could use to find out whether the control technique was really used and (ii) what error or fraud could occur if the question were answered no or if you found the control was not effective.

1. Are blank (sales) invoices available only to authorized personnel?

2. Are (sales) invoices checked for the accuracy of quantities billed? Prices used? mathematical calculations?

3. Are the duties of the accounts receivable bookkeeper separate from any cash functions?

4. Are customer accounts regularly balanced with the control account?

This is the Canadian Auditing. Thanks so much for helping me!!!