**Control Deficiencies in Internal Control Over Financial Reporting (ICFR)**This document provides examples of control deficiencies that may indicate significant deficiencies or material weaknesses within an organization's ICFR. Each scenario should be analyzed to determine whether the deficiency represents a significant deficiency or a material weakness, with a justification for the decision.**Scenario A: Lorenz Corporation**During its assessment, the management of Lorenz Corporation and its auditors identified the following control deficiencies, which individually represent significant deficiencies:- **Inadequate Segregation of Duties**: There was a lack of proper segregation of duties concerning certain information system access controls.- **Improper Recording of Transactions**: Several transactions were not correctly recorded in subsidiary ledgers. While individually these transactions were not material, the cumulative amount was significantly material.- **Lack of Timely Reconciliations**: There was a failure to promptly reconcile account balances affected by the improperly recorded transactions.**Scenario B: First Coast BankCorp**In its assessment, the management of First Coast BankCorp along with its auditors identified the following deficiencies representing significant deficiencies:- **Controls over Estimation of Credit Losses**: There were design issues in the controls over the estimation of credit losses, recognized as a critical accounting estimate.- **Operating Effectiveness of Controls**: Deficiencies were noted in the effectiveness of controls for initiating, processing, and reviewing adjustments to the allowance for credit losses. Additionally, controls aimed at preventing and detecting improper recognition of interest income were deficient.- **Growth Impact on Controls**: The past year saw significant growth in loan balances, which were subject to the controls for credit loss estimation and revenue recognition. Further growth is anticipated in the upcoming year.**Analysis Considerations**When addressing these scenarios, consider:- **Significant Deficiency**: A deficiency, or combination of deficiencies, that is less severe than a material weakness yet important enough to merit attention.- **Material Weakness**: A deficiency, or combination of deficiencies, that results in a reasonable possibility of a material misstatement in the financial statements that will not be prevented or detected on a timely basis.

Whether a deficiency is classified as a significant deficiency or a material weakness is determined…

Answered: Following are examples of control…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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FAILED RISK MANAGEMENT AND INTERNAL CONTROLS DFS highlighted several internal control problems present in Mega-New York. Firstly, there was a lack of proper segregation of duties between the compliance and business functions, due to conflicting responsibilities of certain compliance personnel. For instance, MegaNew York’s BSA/AML officer was also operations manager of the Business Division. DFS further found fault in Mega-New York’s transaction monitoring systems and policies. Compliance staff failed to regularly review “surveillance monitoring filter criteria designed to detect suspicious transactions”. Various documents were also not translated from Chinese to English, impeding effective checks and investigations by regulators. In addition to these structural deficiencies, the staff at Mega-New York lacked proper knowledge and training with regards to US regulatory requirements. These included executive staff such as the BSA/AML Officer and the Chief Compliance Officer. SUSPICIOUS…
The following information pertains to internal controls at company A and company B respectively. Company A Company B Controls are strong Controls are Weak If an audit of these companies is performed according to the AICPA auditing standards, the auditor will: COMPANY A COMPANY B A Test controls Not test controls B Not test controls Test controls C Test Controls Test Controls D Not test controls Not test Control Group of answer choices
1. The use of computer systems in financial reporting increases the risk of material misstatements. true or false 2. Automated controls in a computerized system are always more reliable than manual controls. true or false 3. Which of the following is NOT a requirement for an auditor to maintain independence? a. The auditor must not be related to any employees of the company being audited b. The auditor must not have any financial interest in the company being audited c. The auditor must not have any business relationships with the company being audited d. The auditor must have a significant financial stake in the company being audited 4. Which of the following is NOT a type of computer system control? a.Input controls b.Processing controls c.Output controls d.Feedback controls
Which of the following would probably not be considered an indication of a material weakness?a. Evidence of a material misstatement.b. Ineffective oversight by the audit committee.c. Immaterial fraud committed by senior management.d. Overproduction by the manufacturing plant.
The internal auditors of Brown Electrical Company report to the controller. Because of changes made in the past year to several of the transaction processing programs, the internal auditors created a new test data set. The external auditors requested that the old data set also be run. The internal auditors, embarrassed, explained that they overwrote the original test data set. Required: Outline any potential risks, and determine the courses of action the external auditor should take.
The requirement for an attitude of scepticism means that the auditor should A) perform additional tests of controls to increase the probability of discovering fraud or errors. B) plan and conduct the audit with an attitude of distrust in management. C) not be blind to evidence that suggests the documents, books, or records have been altered or are incorrect. D) not consider management's explanation as evidence on any subject
In accounting, which term describes deficiencies or flaws in the design or operation of internal controls that could increase the risk of errors, fraud, or misstatements in financial reporting? a) External audit b) Compliance review c) Internal control weaknesses d) Financial statement analysis
ANC Company has recently acquired new accounting software to replace the old program that is already getting obsolete. There was an apparent inadequacy of training and supervision in the implementation and actual running of the program and it was realized that there was a better program that should have been purchased, it resulted to a lot of mistakes and delays in the processes. Which inherent limitation of internal control is best described in the given situation? a. Management Override and Intervention b. Lapse of Judgment and Collusion c. Lapse of judgment and Breakdowns d. None of these
Which of the following is NOT an example of a significant deficiency in internal control? O evidence of an effective response to identified significant risks O misstatements not prevented or detected by internal controls O evidence of an ineffective entity risk assessment process O identification of management fraud
The difference between assessing control risk for IT control activities versus assessing control risk for manual control activities is best described as follows: Multiple Choice О in a manual environment it is important for the auditor to gain an understanding of the internal control activity before assessing control risk. О in an IT environment, it is not important to gain an understanding of the internal control activity before assessing control risk. О In an IT environment, it is likely that control risk will be assessed as low on largely all audit engagements. О the assessment process that needs to be undertaken for IT controls is essentially the same as would be taken for manual controls.

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