Professional Documents
Culture Documents
Jamero
Accountancy IV
BS
Problem 1:
a.
i. The management is the one who looks over the assets of
the company, taking into consideration if these assets have
been taken care of and well-protected. Moreover, it is also
concerned with the establishment, maintenance, and
evaluation of the internal control system.
ii. The audit committees main role involves assisting the
board of directors as well as the management. It supports
both in accomplishing their fiduciary and accountability
roles and responsibilities. Further, it also is responsible for
keeping a direct line of communication between the board
and the external and internal auditors.
iii. The external auditor is tasked in the creating of an
opinion whether the financial statements are fairly
presented in conformity with an accepted financial
reporting framework. Also, the external auditor has the
responsibility of communicating any findings of material
weaknesses found during the review.
iv. The internal audit department performs both
operational and financial audits. It investigates and
appraises the effectiveness and efficiency of operations
and internal controls. It also determines Micro Dynamics
compliance with established policies and procedures and
deliver its findings and recommendations to management
or the audit committee in a form of report for evaluation
and corrective action. It has also the role of assisting the
external auditors in reviewing the internal control system.
b. An audit committee is a committee of the board of directors
that focuses on issues relevant to the integrity of the companys
financial reporting. While the existence of an audit committee
does not alter the need for directors to take responsibility for
financial reports, audit committees can play an important role in
the financial reporting process and in supporting and promoting
audit quality. It reviews and recommends to the Board the
approval of the Mico Dynamics interim financial reports and the
annual financial statements. It studies the scope and the results
of the independent audit and ensures compliance with the
independent auditors fee budget. It also ensures that the main
risks associated with the Micro Dynamics activities are identified
and managed by the company itself, notably through the
BS
Problem 2:
a. Objectivity is an unbiased mental attitude that allows internal
auditors to perform engagements in such a manner that they
believe in their work product and that no quality compromises
are made. To make unbiased performance and reporting
decisions, internal auditors must be able to manage threats to
objectivity. This ability is also an important signal to governing
boards, shareholders, and external parties that internal audit
activities can be relied on to provide assurance about control,
compliance, and other relevant matters.
b.
i. Objectivity is not impaired in this situation because the
preparation of policy statements to guide other employees
or other organizational bodies of Leigh Industries in the
development and implementation of internal controls is a
duty and responsibility of the internal audit staff.
ii. Objectivity is impaired in this situation because the
internal auditor performed an operational task which is the
regular bank reconciliations. Although the auditor is not
involved in either the receipt or the disbursement of cash,
regular bank reconciliation is not part of his/her job.
iii. Objectivity is not impaired by the review of the budget for
relevance and reasonableness if the internal auditor has no
duty for creating or executing the budget. The situation will
be different though when he/she will also perform the
review of variances and explanations as this will definitely
impair his/her objectivity.
iv. Objectivity is impaired in this situation because of his/her
involvement in the design, installation, and initial operation
of the new computerized system which in turn will produce
low confidence in audit findings.
v. Objectivity is materially impaired in this situation
because the internal auditor is performing part of Leigh
Industries day-to-day operations.
BS
Problem 3:
a. There is no risk from this situation because the treasurer is
simply delegating the task of signing checks to the assistant
treasurer who is not responsible for either authorizing or
recording transactions.
b. There is risk in this situation because of the violation of the
principle of segregation of duties. The warehouse clerk has
custodial responsibility as well as authorization of the disposal of
damaged goods. The clerk might use his/her authorization power
to record the theft of goods as spoilage or damaged goods.
c. There is risk in this situation because of the violation of the
principle of segregation of duties. The sales manager has the
power of credit authorization as well as accounts receivable
record keeping and might approve credit to anyone he/she knows
and write it off.
d. There is risk in this situation because of the violation of the
principle of segregation of duties. The time clerk has record
keeping tasks as well as asset custody and might neglect the
record of the termination of any employee and keep for himself
the paychecks.
e. There is risk in this situation because of the violation of the
principle of segregation of duties. The accounting clerk might
hide errors or conceal balances that do not equal because of
funds he/she has embezzled.
Problem 4:
BS
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BS
Problem 6:
a.
The payroll processing system violates the principle of the
segregation of duties. The same individual verifies the time
cards, inputs payroll information into the master file, prints
the checks, machine-signs the checks, distributes the checks,
and prepares the payroll journal entry, which may lead to
corruption.
There is no authorization of employees time cards by a
supervisor or other objective party, such as a timekeeper.
The payroll checks are not pre-numbered nor are they
properly stored. As a result, there is no audit trail to verify
check usage.
There is no control over the machine-signing of checksno
control of the signature plate by a second party or use of a log
to record activity.
The data processing department appears to have full access
to the payroll files and checks, which could lead to sensitive
payroll information being leaked.
b.
The personnel department determines the wage rate and
initiates the setup of payroll records, which is a good example
of segregation of duties.
A backup of the master file is made after each weekly
processing of the payroll.