A good understanding of internal controls is essential to auditors. This helps them to understand the business and allows them to effectively plan and execute tests of controls together with an appropriate level of substantive procedures. A small manufacturing company, Westfield, pays its staff in cash and by bank transfer, and the payroll department consists of a payroll clerk who maintains its payroll on a standalone laptop computer. The payroll clerk is supervised by the chief accountant, who in turn reports to the managing director. You are Westfield's auditor. Required(a) For the payroll department at Westfield, describe eight internal control objectives that should be in place. (b) Describe the internal control environment and internal control activities that should be in place to achieve the internal control objectives in (a)

A good understanding of internal controls is essential to auditors. This helps them to understand the business and allows them to effectively plan and execute tests of controls together with an appropriate level of substantive procedures. A small manufacturing company, Westfield, pays its staff in cash and by bank transfer, and the payroll department consists of a payroll clerk who maintains its payroll on a standalone laptop computer. The payroll clerk is supervised by the chief accountant, who in turn reports to the managing director. You are Westfield's auditor. Required(a) For the payroll department at Westfield, describe eight internal control objectives that should be in place. (b) Describe the internal control environment and internal control activities that should be in place to achieve the internal control objectives in (a)

Accounting Information Systems

10th Edition

ISBN:9781337619202

Author:Hall, James A.

Publisher:Hall, James A.

Chapter15: Auditing It Controls Part Ii: Security And Access

Section: Chapter Questions

Problem 1P

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Internal control is said to be the backbone of all businesses. Which of the following is the best description of internal controls? A. Internal controls ensure that the financial statements published are correct. B. The only role of internal controls is to protect customer data. C. Internal controls and company policies are important to protect and safeguard assets and to protect all company data and are designed to protect the company from fraud. D. Internal controls are designed to keep employees from committing fraud against the company.
Segregation of Duties (SOD) is a basic building block of sustainable risk management and internal controls for a business. Which of the following statements is not a segregation of duties violation?A. The duties of Internal IT Developer of company is to write application programs and then perform required program maintenance when a problem occurs.B. The payroll administrator is distributing payroll checks to employees and recording cash receipts in the journal under supervision.C. The accounting clerk who recording cash receipts in the journal in the general ledger performs bank reconciliation to compare if there are any differences between cash transactions.D. The inventory warehouse clerk task is to maintain the inventory records with custody of physical assets inventory to manage asset identification, location and condition Explain why you choose your answer, and not the other (in max 200 words)
Lee Wong, CPA, is auditing the financial statements of the Alexandria Corporation, which has a batch-processing IT-based system for shipping and invoicing that it purchased from a software vendor. The following comments have been extracted from Wong’s notes on IT operations and the processing and control of shipping notices and customer invoices. Each type of computer run is assigned to a specific employee who is responsible for making program changes, running the program, and answering questions. This procedure has the advantage of eliminating the need for records of IT operations because each employee is responsible for his or her own computer runs. At least one IT department employee remains in the computer room during office hours, and only IT department employees have keys to the computer room. The corporation considered the desirability of program controls but decided to retain the manual controls in place prior to the conversion to the software vendor’s system. Company products…
At Carlson Services, the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts. Which internal control procedure is exemplified in the above situation? OA. separation of duties OB. assignment of responsibilities OC. documents OD. competent, reliable, and ethical personnel
One of your Firm’s Managers, Colin Cronen is responsible for the auditing the financial statements of the Roman Corporation, which has a batch-processing IT-based system for shipping and invoicing that it purchased from a software vendor. The following comments have been extracted from Cronen’s notes on IT operations and the processing and control of shipping notices and customer invoices. Each type of computer run is assigned to a specific employee who is responsible for making program changes, running the program, and answering questions. This procedure has the advantage of eliminating the need for records of IT operations because each employee is responsible for his or her own computer runs. At least one IT department employee remains in the computer room during office hours, and only IT department employees have keys to the computer room. The corporation considered the desirability of program controls but decided to retain the manual controls in place prior to the conversion to the…
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Sharon, an audit manager assigned to the audit of Newsome Corporation is observing the client's revenue-receivables cycle. Sharon observes that the IT system responsible for processing and posting receivable transactions produces a daily exceptions report which is emailed to an accounts receivable clerk responsible for investigating the exceptions. Which of the following most accurately describes the type of control that is responsible for determining possible exceptions and forwarding them on to the accounts receivable clerk? • This type of control is typically referred to as a detective control. These types of controls usually assist the client in detecting items that need further investigation. These controls help to minimize misstatements in the financial statements. • This type of control is typically known as a manual IT control. This name is derived from the fact that although the control allows initial processing by the client's IT system, it is flagged for manual follow up. •…
In reviewing the process procedures and internal controls of one of your audit clients, Steeplechase Enterprises, you notice the following practices in place.Steeplechase has recently installed a new computer system that affects the accounts receivable, billing, and shipping records. A specifically identified computer operator has been permanently assigned to each of the functions of accounts receivable, billing, and shipping.Each of these computer operators is assigned the responsibility of running the program for transaction processing, making program changes, and reconciling the computer log. To prevent any single operator from having exclusive access to the tapes and documentation, these three computer operators randomly rotate the custody and control tasks every 2 weeks over the magnetic tapes and the system documentation. Access controls to the computer room consist of magnetic cards and a digital code for each operator. Access to the computer room is not allowed to either the…
Lamar LLC is in the process of updating its revenues and receivables systems with the implementation of new accounting software. James Loden, Inc. is an independent information technology consultant who is assisting Tamar with the project. James has developed the following checklist containing internal control points that the company should consider in this new implementation: Will customer orders be received via the Internet? Are all collections from customers received in the form of checks? Are product quantities monitored regularly?
Imagine that you have been hired to audit the sales and collections of a medium-to-large merchandising company. Suggest at least two ways that management could manipulate earnings and make specific recommendations for the internal control procedure to prevent or detect the transaction.
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