Assume the auditor is testing management s assertion that internal control is effective. The company is a manufacturing company with high-dollar specialized machines used in constructing medical equipment. The auditor is testing controls over the revenue recognition process, including the recording of accounts receivable, cost of goods sold, and inventory. Required The following table identifies important controls the auditor is testing regarding the revenue cycle. The first column describes the control and the second the finding of the auditor. a. Comment on whether the test results are sufficient to justify a conclusion. Explain your rationale. b. Based on the test results, determine whether the auditor s results support a conclusion that either a significant deficiency or material weakness exists. Describe your rationale in the last two columns. Control Testing over Revenue Significant Material Control Tested Test Results Deficiency? Weakness? (1) All sales over Tested throughout year with $10,000 require a sample size of 30. Only 3 computer check failures, all in the last quarter, of outstanding but all approved by sales balances to see if manager. approved balance is exceeded. (2) The computer Sampled ten items during is programmed to the last month. One indicated record a sale only that it was recorded before when an item is shipped. Management was shipped. aware of the recording. (3) All prices are Auditor selected 40 invoice
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