FINAL MILESTONE

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Stratford University *

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202

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Management

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Nov 24, 2024

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4

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FINAL MILESTONE Final Milestone Student’s Name Institutional Affiliation 1
FINAL MILESTONE Final Milestone Communication Letter to Management To EarthWear Clothiers, Inc.’s Management and Board of Directors We, “as external auditors at Willis & Adams, have undertaken an audit of the consolidated financial statements of EWC, Inc. for the fiscal year ended on December 31, 2015. This audit was performed in compliance with the standards and guidelines established by the PCAOB and GAAP (Generally Accepted Accounting Principles).” About the financial statements, Willis & Adams has expressed an unqualified opinion; about internal controls, they have expressed an unfavourable view. Following a thorough investigation of EWC's business practices and the gathering of relevant documentation, Willis & Adams were able to get a sufficient grasp of EarthWear's internal controls and provide an acceptable level of confidence about the effectiveness of such controls. One major shortcoming noted by Willis & Adams is the need for reconciliation in a timely and correct way. Willis and Adams have identified an inconsistency in the process of reconciling the accounts receivable subsidiary ledgers of EWC with the corresponding general ledger account. The difference manifests as a delay in the reconciliation process or inaccuracies in the final results. Although EWC claims to have a written policy in place for this kind of thing, Willis & Adams have found that following the processes in the policy needs to provide faster and more accurate reconciliations. This shortcoming implies that internal control procedures about reconciliations could be more robust, which may lead to subsequent misstatements that go undetected. The suggestions from Willis & Adams to management are as follows: “create and execute a formal procedure to guarantee the timely 2
FINAL MILESTONE reconciliations of subsidiary accounts to the general ledger and make the $376,000 accounts receivable audit adjustment.” In addition, other key issue found by Willis & Adams is the need for more respect for period-end accruals methods. EWC conducts a high amount of inter- company deals each month. These deals include things like moving inventory between storage facilities and dividing up advertising expenses among the many departments of an organization. Despite management's assurances that a clear policy mandating monthly reconciliations is in place, Willis & Adams found that no system was in place to ensure that the procedures were followed or that the work was done in a timely and reliable manner. The management should implement the following suggestions from Willis & Adams: “make the $3,578,000 audit adjustment and set up processes to guarantee accurate and timely reporting.” Opinion Of Internal Controls Internal controls at EarthWear Clothiers were audited by Willis & Adams. EWC's management is accountable for establishing and maintaining reliable internal controls for financial reporting. Furthermore, it is incumbent upon them to assess the adequacy of these internal controls. At Willis & Adams, it is incumbent upon us to provide an evaluation of the efficacy of these internal controls, substantiated by empirical evidence. Financial reporting rules and procedures make up the internal controls. These measures are in place to ensure that the company's transactions and asset sales are recorded accurately and fairly. Additionally, they make sure all transactions are documented correctly to help with the creation of GAAP-compliant financial statements. In addition, these safeguards guarantee that only management and directors may approve the company's cash inflows and outflows. In addition, the policies and procedures in place provide an adequate degree of assurance that the 3
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FINAL MILESTONE organization will avoid or quickly detect any inappropriate purchase, use, or disposal of its assets that might have a material effect on the financial statements. Opinions of Financial Statements The 2015 fiscal year's consolidated financial statements were also subject to an audit by Willis & Adams. EWC is in charge of the company's financial reports. The responsibility of Willis & Adams, in their role as auditors, is to provide a conclusion that is substantiated by the evidence that is now accessible. According to the standards established by the PCAOB, Willis & Adams performed the aforementioned audits. Willis & Adams must effectively design and conduct the audit in line with the given criteria in order to get a reasonable assurance about the absence of material misstatements in the financial statements. In order to ensure the comprehensive examination of financial records, it is essential that a meticulous analysis and corresponding documentation are integral components of an audit. However, according to Willis & Adams, the presence of significant faults and major deficiencies indicated earlier has led to the conclusion that EWC has failed to uphold sufficient internal controls pertaining to financial reporting. 4

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