The following scenario describes the X Company with 25M revenue and approximately 300employees. X company is a publicly listed company that first became listed 3 years ago. It hasbeen hit hard by the recent pandemic and its sales dropped from 375M to 250M. It is barelyprofitable and is just meeting some of the most important debt covenants. During the past year,the CEO and owner of 22% shares of the company has taken the following actions to reducecosts: Laid approximately 75 factory workers and streamlined receiving and shipping to be more efficient.Cut hourly wages by P50 per hour.Changed from big 4 audit firm to a regional audit firm, resulting to an additional audit savings of P300,000. This is the first public company audit for the new firm.Put a freeze on hiring despite the accounting’s retirement of its assistant controller. This has required a great deal of overtime for most accounting personnel.Required:For each of the items above, identify whether the item would be considered (a)operational issue and not a weakness in internal control (b) a material weakness in internal control, and (c) a significant deficiency in internal control. Explain your answer.

(a) Operational issue It relates to the issues faced in the day to day operations of a company.…

Answered: The following scenario describes the X…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following scenario describes the X Company with 25M revenue and approximately 300

employees. X company is a publicly listed company that first became listed 3 years ago. It has

been hit hard by the recent pandemic and its sales dropped from 375M to 250M. It is barely

profitable and is just meeting some of the most important debt covenants. During the past year,

the CEO and owner of 22% shares of the company has taken the following actions to reduce

costs:

Laid approximately 75 factory workers and streamlined receiving and shipping to be more efficient.
Cut hourly wages by P50 per hour.
Changed from big 4 audit firm to a regional audit firm, resulting to an additional audit savings of P300,000. This is the first public company audit for the new firm.
Put a freeze on hiring despite the accounting’s retirement of its assistant controller. This has required a great deal of overtime for most accounting personnel.

Required:

For each of the items above, identify whether the item would be considered (a)operational issue and not a weakness in internal control (b) a material weakness in internal control, and (c) a significant deficiency in internal control. Explain your answer.

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