Question

Several categories of control activities are identified in the chapter using the following framework:

• A. Authorization
• B. Performance reviews
• C. Information-processing controls
  • C1. IT general controls
  • C2. IT application controls
  • C3. IT-dependent manual controls
• D. Physical controls
• E. Segregation of duties

Following are specific control procedures prescribed by Trusty Inc., a public company:

1. The software application must match information from a vendor's invoices with information from receiving and information from the purchase order before a check is issued.

2. Two authorized signatures are required on every check for payment of purchases over $100,000.

3. Each month the credit manager carefully reviews the computer-generated aged trial balance of accounts receivable to identify past-due balances and follows up for collection.

4. A supervisor must approve overtime work.

5. The software application assigns sequential numbers to sales invoices used in the billing system.

6. The software application verifies the mathematical accuracy of each voucher and prints an exception report for items with mathematical errors.

7. Employee payroll records are kept on an electronic file that can only be accessed by certain terminals and are password-protected.

8. An accounting supervisor reviews journal entries periodically for reasonableness of account classifications.

9. Two individuals open the mail and prepare a prelisting of checks received. Then the checks received from customers and related remittance advices are separated in the mailroom and subsequently processed by different individuals.

10. All vouchers must be stamped “paid” on payment.

11. On a quarterly basis, the controller reviews a software-generated comparison of warranty expenses and actual warranty claims.

12. Computer programmers are not allowed in the computer room.

13. The software application will not complete the processing of a batch when the accounts receivable control account does not match the total of the subsidiary ledgers.

Required

1. Indicate the category of control activities applicable to each procedure using the framework above.

2. Identify an assertion to which each procedure pertains.

Answer 1

Answer:

Item	a. Category of Control Activities	b. Assertion
The software application must match information from a vendor’s invoices with information from receiving and information from the purchase order before a check is issued.	IT application controls	Occurrence
Two authorized signatures are required on every check over $100,000.	Authorization	Occurrence
Each month the credit manager carefully reviews the computer-generated aged trial balance of accounts receivable to identify past-due balances and follows up for collection.	Performance reviews	Valuation and allocation
A supervisor must approve overtime work.	Authorization	Occurrence
The software application assigns sequential numbers to sales invoices used in the billing system.	IT application controls	Completeness
The software application verifies the mathematical accuracy of each voucher and prints an exception report for items with mathematical errors.	IT application controls	Accuracy
Employee payroll records are kept on a computer file that can only be accessed by certain terminals and are password protected.	IT general controls	Occurrence, accuracy, classification
An accounting supervisor reviews journal entries periodically for reasonableness of account classifications.	IT dependent manual controls	Classification
Two individuals open the mail and prepare a prelisting of checks received. Then the checks received from customers and related remittance advices are separated in the mailroom and subsequently processed by different individuals.	Segregation of duties	Completeness
All vouchers must be stamped “paid”upon payment.	Physical controls	Occurrence
On a quarterly basis, the controller reviews a software-generated comparison of warranty expenses and actual warranty claims.	Performance reviews, IT dependent manual controls.	Accuracy
Computer programmers are not allowed in the computer room.	IT general controls	Pervasive affect on multiple assertions
The software application will not complete the processing of a batch when the accounts receivable control account does not match the total in the subsidiary ledgers.	IT application controls	Occurrence or completeness