Question

QUESTION 4

1. Strata Imports Limited (Strata) imports specialty metals from around the world. Strata is 100% owned by Phillip Mak, who is also the Chief Executive Officer and Chairman of the Board of Directors.

   Colin Danforth is the Chief Financial Officer and also a Director and Chair of the Audit Committee of the Board of Directors. He has worked for Strata for thirty years and is soon to retire. The Controller, Karen Singh, is expected to succeed him as CFO.

   There are nine other members of the Board of Directors. All are business associates of Phillip Mak or are retired politicians. Two of the politicians are also lawyers.

   Over the years, as the company grew, Colin wrote extensive policy and procedures manuals. Due to the risk of loss on foreign exchange, Colin approves all orders over $CAD 100,000. His approval is based on an economic analysis and a forecast of currency trading. Lately, Karen has been working with Colin to learn how to perform the analysis. Sales average $50,000,00 per year but are highly variable due to commodity prices and specialized demand.

   In addition to Karen, there is an Accounting Manager, three accounts payable clerks, two accounts receivable clerks, two inventory clerks, a payroll clerk, a general accountant, and a financial analyst, None are professional accountants, but all have been with Strata for at least ten years.

   Among the procedures are vacation procedures. It states that when a member of the team goes on vacation, then their duties are fulfilled by someone at the same level or above. Any conflicting duties are also bumped for the period of time to the next person above. For example, the Accounting Manager normally does the bank reconciliation, and his work is reviewed by Karen. If he goes on vacation during the first week after the month-end, then the bank reconciliation will be done by Karen and reviewed by the CFO. In thirty years, the auditors have had few or no recommendations to improve internal controls.

   
   Required

   It is the beginning of a new audit season. As the external auditor for Strata, evaluate the general and environmental controls.

Answer 1

General and environmental controls of Auditing:

Environment controls set the organisation and will influence the employess to stop mitigating risk.It is the base for all the activities thats happening in the company for maintaining control and structure.

Following are the some of the factors:

Human resource practices:Hiring and training new employees is an entities control difficulties.

Structure:small vs large business environment roles and responsibulities will determine the risks of an organisation.lines of business has different internal control challenges.

Competence: dedication to implement the controls by employees and management.

Responsible:employees according to their authority or designations,their responsibulities have to be assigned.

General Control activities are the different policies and procedures followed by the management.Following are the some of the general control activities

Physical controls:Assets information and details have to accesssed only by some of the employees and oppurtunities have to be shrinked to reduce risk and fraudulent activities.

process of an information:Maintainance of accounting software for financial reporting and accounting is the foundation.these controls have to be more effective and efficient

Financial performance:this may include comparision of Budgeted results and actual results or last year and current year etc..., review of financial performance will help in organisations fraud and their activities.