Assignment 4

Rhames, Brittany (RIS-ATL) Brittany Rhames ASSIGNMENT 4&5 Brittany Rhames

Oceanview Marine Company 10-8 Control Environment — Summary BR 3/24/2024 December 31, 2018 Level of Control Effective Ineffective Comments 1. General:  ☐ Management’s philosophy and operating style  ☐ W/P 10-1 Organizational structure  ☐ W/P 10-1 & W/P 10-2 Methods to communicate the assignment of authority and responsibility  ☐ W/P 10-2 Management control methods  ☐ W/P 10-2 Audit committee  ☐ W/P 10-3 Internal audit ☐  W/P 10-3, clients of this size usually Personnel policies and procedures  ☐ W/P 10-3 External influences  ☐ W/P 10-4 2. Computer Hardware and Systems Software  ☐ W/P 10-5 3. Computer Software Applications  ☐ W/P 10-6 4. IT Department ☐  W/P 10-7 Conclusions : All the information in WP 10-1 through 10-7 points to an extremely effective control environment at Oceanview Marine Company. The lack of an audit committee or internal audit department does not always imply that the control environment is inefficient because of Oceanview's relatively small size. Although the IT department may raise suspicions, Cynthia's current CPA license and integrity rule out fraud. Current workpapers — assess control risk  Page 44

Oceanview Marine Company 13-4 Preliminary Assessment of Control Risk: BR 3/24/2024 Acquisitions December 31, 2018 Objectives : Existing Controls : Existence/ occurrence Completeness Accuracy Classification Timing Posting and Summarization 1. Buy orders that have been approved (W/P 13-3, #1) are required to support buy transactions.  ☐ ☐ ☐ ☐ ☐ 2. Cancelling documents stops them from being used again (W/P 13-3, #2).  ☐ ☐ ☐ ☐ ☐ 3. Receiving reports are correctly accounted for and pre-numbered (W/P 13-3, #3). ☐  ☐ ☐ ☐ ☐ 4. Receiving reports are managed to help ensure that every item received is documented (W/P 13-3, #4). ☐  ☐ ☐ ☐ ☐ 5. The computations, costs, and amounts on vendors' invoices are internally verified (W/P 13-3, #5) ☐ ☐  ☐ ☐ ☐ 6. The correct accounts have been debited and credited for buying transactions, according to verification from a third party unrelated to the purchasing function (W/P 13-3, #6). ☐ ☐ ☐  ☐ ☐ 7. Independently footed and posted to the general ledger is the voucher register (W/P 13-3, #9) ☐ ☐ ☐ ☐ ☐  8. Independent balancing of the general ledger and accounts payable subsidiary records (W/P 13-3, #10) ☐ ☐ ☐ ☐ ☐  9. ☐ ☐ ☐ ☐ ☐ ☐ Control Deficiencies: 1. No independent comparison of dates on receiving reports to dates recorded in the voucher register (W/P 13-3, #7) ☐ ☐ ☐ ☐  ☐ 2. No policy requiring recording of purchases daily as close to time of receipt of goods as possible (W/P 13-3, #8) ☐ ☐ ☐ ☐  ☐ 3. ☐ ☐ ☐ ☐ ☐ ☐ 4. ☐ ☐ ☐ ☐ ☐ ☐ Preliminary assessment of control risk: Enter H (high), M (medium), or L (low) in each column Current workpapers — assess control risk  Page 61

Oceanview Marine Company 14-1 Audit Program (planning format): BR 3/24/2024 Tests of Controls for Acquisitions December 31, 2018 Objectives Existing Control(s) Tests of Control(s) Existence/occurrence — recorded acquisition transactions are for goods and services actually received Purchases transactions are supported by approved purchase orders (W/P 13- 3, #1). Documents are cancelled to prevent re- use (W/P 13-3, #2). Check purchase orders for signs of authorization. See whether reusing is prohibited by keeping an eye on the cancelation of vouchers and the accompanying documentation. Completeness —all acquisition transactions are recorded Receiving reports are prenumbered and accounted for regularly (W/P 13-3, #3). Receiving reports are controlled in a manner that helps assure that all goods received are recorded (W/P 13-3, #4). Check for prenumbering in receiving reports and take sequence into consideration. Check to see if receiving reports are filled out correctly to ensure that every item is received and recorded correctly. Accuracy —acquisition transactions are recorded at the correct amounts Internal verification of invoice information (W/P 13-3, #5). Check to see if the accuracy of vendor invoice information is confirmed. Classification — acquisition transactions are debited and credited to the proper accounts Independent verification that the proper accounts have been debited and credited for purchases transactions (W/P 13-3, #6). Keep an eye out for Cynthia's verification of the correct general ledger distribution for buying transactions. Timing —acquisition transactions are recorded on the correct dates None. N/A Posting and summarization — acquisitions are correctly totaled in the voucher register and posted to the G/L and subsidiary records Voucher register is independently footed and posted to the general ledger (W/P 13-3, #9). Independent reconciliation of A/P subsidiary records and the G/L performed regularly (W/P 13-3, #10). Test the computerized payment voucher posting and footing. Look for initials that indicate reconciliation on the A/P account in the G/L. Current workpapers — tests of controls and substantive tests of transactions  Page 62

Oceanview Marine Company 14-2 Audit Program (planning format): BR 3/24/2024 Substantive Tests of Acquisitions Transactions December 31, 2018 Objectives Substantive Tests of Transactions Existence/occurrence — recorded acquisition transactions are for goods and services received Attest to the receipt of each documented purchase order by providing a sample of entries from the purchase’s diary to the receiving reports. Completeness —all acquisition transactions are recorded To ensure that every purchase order has been documented, follow the trail from entries in the purchasing notebook to a sample of the receiving report. Accuracy —acquisition transactions are recorded at the correct amounts Compare the total amount shown on the vendor invoice and the amount noted in the buy notebook for a sample of purchase orders. (2) Refoot and resend the invoice from the seller. (3) Examine the quantities on the vendor invoice and the purchase order receipt. (4) Examine the vendor invoice's prices per unit against the approved price lists. Classification — acquisition transactions are debited and credited to the proper accounts Check the supporting documentation for a sample of purchase order transactions to make sure the right accounts have been credited and debited. Timing —Acquisition transactions are recorded on the correct dates Compare the dates actually received with the dates actually reported for a sample of purchase order transactions. Posting and summarization — acquisitions are correctly totaled in the voucher register and posted to the G/L and subsidiary records Follow the postings in the purchases journal and follow them to the general ledger accounts payable. Follow a sample from the log of purchases to the postings in the A/P subsidiary documents. Current workpapers — tests of controls and substantive tests of transactions  Page 64