What are the business objectives and what gaps are in their internal control?

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OevggnalO

Business Finance

Description

- What are the business objectives

- what gaps are in their internal control?

- How each can be improved: control environment, risk assessment, information system, control activities, monitoring activities?

Please ask questions!!!!!!!!

I have already completed milestone one. Please read that first and then read the guidelines and grading for the other paper.

I am giving considerable time for this paper as because my first paper I didn't do very well on. So I ask please ask questions.

If you need the textbook let me know.

Thank you very much!


Milestone 2:

Your organization has decided to move forward with the audit of EarthWear Clothiers. As lead auditor, you will select one of EarthWear Clothiers’ business objectives and create an audit plan of their financial statements. The business objectives are:

 Expand further into the global market by launching internet sites into South American countries

 Increase customer base by introducing a new extreme sports product line to attract younger consumers

 Reduce pricing to be more competitive in the marketplace by seeking out additional vendor relationships to lower costs of goods sold

 Implement an employee stock purchase plan to increase productivity and employee morale

 Reduce delivery and distribution time of products and services by adding additional warehouse locations

Milestone 3:

The items below were found while reviewing internal control during your evaluation. Consider whether the item is a significant deficiency or a material weakness based on the other facts presented in the case and the materiality limits set in Milestone Two:

 There were several instances of transactions that were not properly recorded in subsidiary ledgers; transactions were not material, either individually or in aggregate.

 There are a significant number of intercompany transactions monthly. The transactions are related to transfers of inventory between warehouses and the allocation of marketing costs between the business units. The intercompany transactions are frequently material. There is a formal management policy that requires monthly reconciliation of the intercompany accounts; however, there is no process to ensure that the procedures are performed consistently. The result is a lack of timely reconciliations, and differences in intercompany accounts that are frequent and significant.  Accounts receivable subsidiary ledgers are not reconciled to the general ledger account in a timely and accurate manner. There is a formal policy; however, there is no formal process or procedure that is followed to complete this task. The differences between the subsidiaries and ledger accounts required an audit adjustment of $376,000.

 There was a lack of adequate cut-off procedures to ensure the timely recording of certain period-end accruals. This resulted in an audit adjustment of $3,578,000.

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ACC 645 Milestone Three Guidelines and Rubric Overview: For the final project, you will work through components of a case study in which you will assume the role of a lead auditor at Willis & Adams. Your firm has been approached by EarthWear Clothiers to perform an audit. In your role as lead auditor, you will perform management duties. You will evaluate internal and external factors to determine client engagement, develop an audit plan, determine recommendations for improving internal controls, and communicate the audit opinion. For this milestone, you will create the report on internal control. Prompt: For this milestone, you will evaluate various components of EarthWear Clothiers to determine any gaps in internal controls, and you will discuss strategies to improve them. Evaluate the following components within EarthWear Clothiers for gaps in internal controls and explain how each can be improved: control environment, risk assessment, information system, control activities, monitoring activities. The items below were found while reviewing internal control during your evaluation. Consider whether the item is a significant deficiency or a material weakness based on the other facts presented in the case and the materiality limits set in Milestone Two:     There were several instances of transactions that were not properly recorded in subsidiary ledgers; transactions were not material, either individually or in aggregate. There are a significant number of intercompany transactions monthly. The transactions are related to transfers of inventory between warehouses and the allocation of marketing costs between the business units. The intercompany transactions are frequently material. There is a formal management policy that requires monthly reconciliation of the intercompany accounts; however, there is no process to ensure that the procedures are performed consistently. The result is a lack of timely reconciliations, and differences in intercompany accounts that are frequent and significant. Accounts receivable subsidiary ledgers are not reconciled to the general ledger account in a timely and accurate manner. There is a formal policy; however, there is no formal process or procedure that is followed to complete this task. The differences between the subsidiaries and ledger accounts required an audit adjustment of $376,000. There was a lack of adequate cut-off procedures to ensure the timely recording of certain period-end accruals. This resulted in an audit adjustment of $3,578,000. Specifically, the following critical elements must be addressed: III. Internal Control: You will evaluate various components of the organization and determine any gaps in internal controls, and you will discuss strategies to improve them. Evaluate the following components within an organization for gaps in internal controls, and explain how each can be improved: A. Control environment B. Risk assessment C. Information system D. Control activities E. Monitoring activities 1 Rubric Guidelines for Submission: Your report on internal control must be 2 to 3 pages in length (plus a cover page and references), with double spacing, 12-point Times New Roman font, and one-inch margins. You should use current APA style guidelines for your citations and reference list. Critical Elements Internal Control: Control Environment Proficient (100%) Evaluates the control environment within an organization for gaps in internal controls and explains how they can be improved Internal Control: Risk Assessment Evaluates the risk assessment within an organization for gaps in internal controls and explains how they can be improved Internal Control: Information System Evaluates the information system within an organization for gaps in internal controls and explains how they can be improved Internal Control: Control Activities Evaluates the control activities within an organization for gaps in internal controls and explains how they can be improved Internal Control: Monitoring Activities Evaluates the monitoring activities within an organization for gaps in internal controls and explains how they can be improved Needs Improvement (70%) Evaluates the control environment within an organization for gaps in internal controls and explains how they can be improved, but explanation is cursory or contains inaccuracies Evaluates the risk assessment within an organization for gaps in internal controls and explains how they can be improved, but explanation is cursory or contains inaccuracies Evaluates the information system within an organization for gaps in internal controls and explains how they can be improved, but explanation is cursory or contains inaccuracies Evaluates the control activities within an organization for gaps in internal controls and explains how they can be improved, but explanation is cursory or contains inaccuracies Evaluates the monitoring activities within an organization for gaps in internal controls and explains how they can be improved, but explanation is cursory or contains inaccuracies 2 Not Evident (0%) Does not evaluate the control environment within an organization for gaps in internal controls Value 18 Does not evaluate the risk assessment within an organization for gaps in internal controls 18 Does not evaluate the information system within an organization for gaps in internal controls 18 Does not evaluate the control activities within an organization for gaps in internal controls 18 Does not evaluate the monitoring activities within an organization for gaps in internal controls 18 Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Total 3 10 100% ACC 645 Milestone Two Guidelines and Rubric Overview: For the final project, you will work through components of a case study in which you will assume the role of a lead auditor at Willis & Adams. Your firm has been approached by EarthWear Clothiers to perform an audit. In your role as lead auditor, you will perform management duties. You will evaluate internal and external factors to determine client engagement, develop an audit plan, determine recommendations for improving internal controls, and communicate the audit opinion. For this milestone, you will develop the audit plan. Prompt: Your organization has decided to move forward with the audit of EarthWear Clothiers. As lead auditor, you will select one of EarthWear Clothiers’ business objectives and create an audit plan of their financial statements. The business objectives are:      Expand further into the global market by launching internet sites into South American countries Increase customer base by introducing a new extreme sports product line to attract younger consumers Reduce pricing to be more competitive in the marketplace by seeking out additional vendor relationships to lower costs of goods sold Implement an employee stock purchase plan to increase productivity and employee morale Reduce delivery and distribution time of products and services by adding additional warehouse locations You will use the information from your preliminary review and auditing standards to support your plan. Using your selected business objective, you will create an audit plan of the organization’s financial statements that addresses the following: business risks, management assertions, audit risk, internal controls, and the effect on audit procedures. You will support your plan with the appropriate auditing standards. You will also determine materiality by conducting a preliminary risk assessment, and you will explain which factors were used in making this determination. You can obtain the ICFR and materiality guidelines on the Willis & Adams website. (Clicking the link initiates an automatic download of a ZIP file. You will need a utility to unzip the archive before you can use it as intended.) Specifically, the following critical elements must be addressed: II. Planning the Audit: You will select one of the organization’s business objectives and create an audit plan of the organization’s financial statements. Use the information from your preliminary review and auditing standards to support your plan. A. Using your selected business objective, create an audit plan of the organization’s financial statements that addresses the following, and support each with the appropriate auditing standards: 1. Business risks 2. Management assertions 3. Audit risk 4. Internal controls 5. Effect on audit procedures B. Determine materiality by conducting a preliminary risk assessment, and explain which factors were used in making this determination. 1 Rubric Guidelines for Submission: Your audit plan must be 2 to 3 pages in length (plus a cover page and references), with double spacing, 12-point Times New Roman font, and one-inch margins. You should use current APA style guidelines for your citations and reference list. Critical Elements Planning the Audit: Business Risks Proficient (100%) Creates an audit plan of the organization’s financial statements that addresses business risks, and supports it with the appropriate auditing standards Planning the Audit: Management Assertions Creates an audit plan of the organization’s financial statements that addresses management assertions, and supports it with the appropriate auditing standards Planning the Audit: Audit Risk Creates an audit plan of the organization’s financial statements that addresses audit risk, and supports it with the appropriate auditing standards Planning the Audit: Internal Controls Creates an audit plan of the organization’s financial statements that addresses internal controls, and supports it with the appropriate auditing standards Needs Improvement (70%) Creates an audit plan of the organization’s financial statements that addresses business risks and supports it with auditing standards, but the auditing standards are inappropriate or irrelevant Creates an audit plan of the organization’s financial statements that addresses management assertions and supports it with auditing standards, but the auditing standards are inappropriate or irrelevant Creates an audit plan of the organization’s financial statements that addresses audit risk and supports it with auditing standards, but the auditing standards are inappropriate or irrelevant Creates an audit plan of the organization’s financial statements that addresses internal controls and supports it with auditing standards, but the auditing standards are inappropriate or irrelevant 2 Not Evident (0%) Does not create an audit plan of the organization’s financial statements that addresses business risks Value 15 Does not create an audit plan of the organization’s financial statements that addresses management assertions 15 Does not create an audit plan of the organization’s financial statements that addresses audit risk 15 Does not create an audit plan of the organization’s financial statements that addresses internal controls 15 Planning the Audit: Audit Procedures Creates an audit plan of the organization’s financial statements that addresses the effect on audit procedures, and supports it with the appropriate auditing standards Planning the Audit: Materiality Determines materiality by conducting a preliminary risk assessment and explains which factors were used in making this determination Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Creates an audit plan of the organization’s financial statements that addresses the effect on audit procedures and supports it with auditing standards, but the auditing standards are inappropriate or irrelevant Determines materiality by conducting a preliminary risk assessment and explains which factors were used in making this determination, but explanation is cursory or contains inaccuracies Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Does not create an audit plan of the organization’s financial statements that addresses the effect on audit procedures 15 Does not determine materiality by conducting a preliminary risk assessment 15 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 10 Total 3 100% Running Head: CLIENT ENGAGEMENT Client Engagement 1 2 CLIENT ENGAGEMENT Client Engagement I. II. Organization's corporate structure and annual report Information related to the external auditing firm, and summary of findings: III. Independence IV. Knowledge of client industry V. VI. VII. Staffing Capabilities Internal and external factors determining client engagement Recommendations for improving the internal controls and communicating the audit opinion 3 CLIENT ENGAGEMENT Client Engagement Organization's Corporate Structure and Annual Report Earth wear Clothiers is a firm that deals in making clothes for sports which are outdoor. Its products are mostly sold through the mail order. The corporate structure of the company of the organization is properly organized into departments and working staff. Some of the common departments included in the Earth wear company are Accounting, Human Resource Department and Marketing Departments with lines of authority from the CEO who is in charge of all the departments under him and the whole staff (Bell, 2012). From the annual report of Earth Wear Company, the company has tried to increase the rate of its sales through expanding on its market share and increasing the number of its customers by providing goods which are of good quality. The organization also has plans of increasing its sales through customers via targeted personal emails and advertising and posting its products on their web. The company also has plans for expanding its operations. From the report, the company has mailed approximately 160 million issues around the world. Earth wear Clothiers view each of the mailed issues as an opportunity to interact with its customers. This also contributes to the increase in sales and revenues of the company. From the findings of the annual reports of the company, Willis and Adams should accept Earth wear Clothiers firm as their new client since they have available data that can be worked with (Walo, 2015). Information related to the external auditing firm, and summary of findings: Independence 4 CLIENT ENGAGEMENT Willis and Adams is an external audit firm that works with its clients in performing auditing operations. Independence of the company is a case whereby the company can access the financial documents or any documents needed to execute the duties of the auditing company. The International Accounting Standards and Auditing Standards have given the auditors and the auditing firm to execute their duties freely and with no influence on the client. The external auditing firm, which is Willis and Adams is then required to make an opinion based on the findings during the auditing process. The opinion made by the auditing firm should be independent without internal or external influences (Hayes, 2012). Knowledge of Client Industry IAS 310 of the auditing standards require the auditing firm to know the client that they are auditing. Willis and Adams auditing firm will accept Earth wear Clothiers as a new firm as it has full knowledge of the firm through conducting site visitation with the client. The auditing firm can also enhance or gain the knowledge of its client through the minutes of the company, and other legal documents of Earth wear Clothier. They can obtain information about the client firm through the lawyers and surveyors of the company and also through the employees of the firm. For the external auditing firm to work with and produce quality results for the client, it is important for the auditing firm to have substantial knowledge and information relating to the client firm. The firm should, therefore, accept the new client as it can gain information about the company and work with it (Johnstone, 2014). Staffing Capabilities Willis and Adams have staffing capabilities to operate and work within auditing Earth wear Clothier firm. The staff has the technical skills that are needed in conducting the auditing 5 CLIENT ENGAGEMENT process. The staff deployed by Willis and Adams has highly qualified accountants with the technical skills and capabilities of carrying out auditing tasks with their client. The staff deployed to conduct auditing duties for the company also have high levels of integrity and uphold work values of the organization. Internal and External Factors Determining Client Engagement Among the internal factors that determine the client engagement include the employee relationships and their participation with the auditing firm, the opportunities for growth by the firm also is a factor that determines the client engagement. From the audit reports, Earth wear Clothiers has growth and expansion opportunities and therefore Willis and Adams should accept the company as a new client (Walo, 2015). Among the external factors determining client engagement include, other social responsibilities and duties, competing for job and opportunities for new careers may also determine client engagement by the auditing firm. Social obligations can lead to poor performance due to absenteeism by the employees. The differences in career salaries may also determine client engagement as an external factor (Hayes, 2012). It will be essential for Willis and Adams to accept the new client which is Earth wear Clothiers as the employees and other staff of the company have good work relations which is an important element of engaging a client. From the information obtained by the annual reports, the new client should be accepted by the auditing firm (Bell, 2012). Recommendations for improving the internal controls and communicating the audit opinion 6 CLIENT ENGAGEMENT The recommendations to improve the internal control system for the client include: to segregate and divide accounting tasks, restriction in access to financial information, increased staff supervision and giving job vacations to employees. The opinion of Willis and Adams can indicate an unqualified opinion, disclaimer opinion or adverse opinion depending on the outcome of the auditing process (Johnstone, 2014). 7 CLIENT ENGAGEMENT References Bell, T. B., Bedard, J. C., Johnstone, K. M., & Smith, E. F. (2012). Kristin: A computerized decision aid for client acceptance and continuance risk assessments. Auditing: A Journal of Practice & Theory, 21(2), 97-113. Johnstone, K. M., & Bedard, J. C. (2013). Risk management in client acceptance decisions. The Accounting Review, 78(4), 1003-1025. Hayes, R., Wallage, P., & Gortemaker, H. (2014). Principles of auditing: an introduction to International standards on auditing. Pearson Higher Ed. Ayers, S., & Kaplan, S. E. (2013). Potential differences between engagement and risk review partners and their effect on client acceptance judgments. Accounting Horizons, 12(2), 139. Walo, J. C. (2015). The effects of client characteristics on audit scope. Auditing, 14(1), 115. Johnstone, K. M., & Bedard, J. C. (2014). Engagement planning, bid pricing, and client response in the market for initial attest engagements. The Accounting Review, 76(2), 199-220.
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Explanation & Answer

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Running head: INTERNAL CONTROL

1

Internal control
Name
Institution
Date

INTERNAL CONTROL

2

The corporate structure of the firm and annual report
EarthWear Clothiers is an organization dealing with the production of outdoor sports'
clothes. The sale of its products is mainly conducted by means of mail orders. The organization
of the firm's corporate structure is done in a proper manner in form of departments and
employees. The departments present in this company include Marketing, Accounting and Human
resource departments having the top authority of a Chief Executive Officer (CEO) who is
charged with authority over all the employees and departments. The yearly report of the
EarthWear organization shows increasing rates on sales through expansion of its share in the
market and boosting the client numbers through the provision of high-quality goods and services.
From the report, an approximate of 160 million issues have been mailed by the
organization all over the world. They believe that the issues mailed present an opportunity for
interaction between themselves and their clients. This also increases the sales and revenue
generation by the company. Annual reports showed that Willis and Adams firm should work
with the EarthWear Clothiers company as they have existing data that can be utilized.

Information on the auditing firm and summary of findings
Independence
The external firm for auditing is the Willis and Adams which performs audit operations for
various companies. The independence of the firm is related to the freedom of the company to
retrieve documents necessary for its audit duties. International Auditing and Accounting
standards give the people conducting the audit and the audit company to have freedom in the

INTERNAL CONTROL

3

execution of their tasks without being influenced by their client. The auditing firm, Willis, and
Adams would be required to have an opinion based on their disc...


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