Question

Internal controls can be categorized using the following framework:

1.	Control environment
2.	Risk assessment
3.	Control activities
	3.1 Authorization
	3.2 Performance reviews
	3.3 Information-processing controls
	3.3.1. IT general controls
	3.3.2. IT application controls
	3.3.3. IT-dependent manual controls
	3.4 Physical controls
	3.5 Segregation of duties
4.	Information and communication
5.	Monitoring

Following is a list of controls implemented by Waterfront, Inc.:

a.		Management established a code of conduct that includes rules regarding conflicts of interest for purchasing agents.
b.		Waterfront’s management established a disclosure committee to review the selection of new accounting policies.
c.		Any software program revision must be approved by user departments after testing the entire program with test data.
d.		The managers of each of Waterfront’s manufacturing departments must review expenditures charged to their responsibility center weekly.
e.		The CEO, CFO, and controller review the financial consequences of business risks annually to ensure that controls are in place to address significant business risks.
f.		Human resources focuses on ensuring that accounting personnel have adequate qualifications, experience, and training for work performed in billing and accounts receivable.
g.		Security software limits access to programs and data files, and keeps a continuous log of programs and files that have been accessed. The log is reviewed by the security manager daily.
h.		A software program prints a daily report of all shipments that have not yet been billed to customers.
i.		The controller reviews sales and collections bi-monthly.
j.		The software application compares the information on the sales invoice with underlying shipping information for the transaction.
k.		Customer billing complaints are directed to internal audit for follow-up and resolution.
l.		The documentary transaction trail for all credit sales is documented in company policy manuals.
m.		Waterfront uses a Microsoft Excel program to calculate depreciation expense. An accounting manager tests the calculations on a sample basis and evaluates the overall reasonableness of depreciation expense.

Identify the assertion or assertions to which each procedure pertains: (Existence/Occurrence, Completeness, Valuation/Allocation, Rights/Obligations, Presentation/Disclosure).

Answer 1

Solution	Identification of assertion or assertions to which each procedure pertains:
	List of Controls	Assertions
(a)	Management established a code of conduct that includes rules regarding conflicts of interest for purchasing agents.	1) Existance- In control environment 2)Rights/Obligations -of Purchasing agents 3 Disclosure- Of interest of each purchasing agenets
(b)	Waterfront’s management established a disclosure committee to review the selection of new accounting policies.	1) Valuation- Itens if asset and liablity valued as per new accounting policies 2) Disclosure-Disclosure in statement of financial statements
(c )	Any software program revision must be approved by user departments after testing the entire program with test data.	1) Existence- software program procedure must exist 2) Completeness - testing should be completed for each program tested. 3)Right/ Obligation- Right and obligation should be determined for user deparments who would approve the programm. 4) Disclosure- reason for revision of software progrma must be recorded and disclosed to user deparment.
(d)	The managers of each of Waterfront’s manufacturing departments must review expenditures charged to their responsibility center weekly.	1) Existenc/Ocuurrence- Expenditure must occur and system of review must exist. 2) Allocation - Expenditure appropriatly allocated to each responsibility center 3) Responsibity -Responsibity for not reviewing or inappropriatly reviewing the expenditure by manufecturing department. 4)Presentation/ Dislosure- Disclosure must be given in statement of cost of each responsibity center.
(e )	The CEO, CFO, and controller review the financial consequences of business risks annually to ensure that controls are in place to address significant business risks.	1) Existence/Ocuurrence- system of review of risk assessment must exist. 2) Obligations- obligation in relation to ineffective or inappropriate control in place. 3)- Presentation/ Disclosure of signigicant business risk.
(f)	Human resources focuses on ensuring that accounting personnel have adequate qualifications, experience, and training for work performed in billing and accounts receivable.	1) Existence of review and assessment procedure. 2)Allocation of work as per qualification and training of personnel. 3)Right/Obligation of accounting personnel for purforming work 4) Disclosure of adequate documentation of qualification and experiences.
(g)	Security software limits access to programs and data files, and keeps a continuous log of programs and files that have been accessed. The log is reviewed by the security manager daily.	1) Existence of review and access controls 2) Obligation of security manager for reviewing the log files. 3) Dislosure of unauthorised access to the program and data files.
(h)	A software program prints a daily report of all shipments that have not yet been billed to customers.	1) Completeness- Printing of daily report must be for all shipments tha have not yet been billed to customers. 2)Disclosure -all prints out must be presented to appropriate authority.
(i)	The controller reviews sales and collections bi-monthly.	1) Existence of review procedure of slaes and collections by controller. 2) Right/Obligation of controller for reviewing the sales and collections. 3) Disclosure- of inappropriate recording of sales and collections.
(j)	The software application compares the information on the sales invoice with underlying shipping information for the transaction.	1) Control must exist. 2) Transaction must be completed 3) variations must be reported and disclosed to appropriate authority.
(k)	Customer billing complaints are directed to internal audit for follow-up and resolution.	1) follow-up and resolution procedure must exist. 2)Right/obligation of internal auditor must be defined and assessed. 3) Unresolved complaints must be presented and disclosed to appropriate authorities.
(l)	The documentary transaction trail for all credit sales is documented in company policy manuals.	1) system of documentation of documentary transaction tail must exist. 2) all credit sales must be completed.
(m)	Waterfront uses a Microsoft Excel program to calculate depreciation expense. An accounting manager tests the calculations on a sample basis and evaluates the overall reasonableness of depreciation expense.	1) Valuation- Depreciation expense must be properly calculated. 2) Depreciation expense disclosed in financial results and financial statements must be correct.