Question

11-24 (Objectives 11-3 , 11-4) The following are internal controls related to various cycles.

1.      Sales invoices are matched with shipping documents by the computer system and an exception report is generated.

2.      Receiving reports are prenumbered and accounted for on a daily basis.

3.      Sales invoices are independently verified before being sent to customers.

4.      Payments by check are received in the mail by the receptionist, who lists the checks and restrictively endorses them.

5.      Labor hours for payroll are reviewed for reasonableness by the computer system.

6.      Checks are signed by the company president, who compares the checks with the underlying supporting documents.

7.      Unmatched shipping documents are accounted for on a daily basis.

8.      The computer system verifies that all payroll payments have a valid employee identification number assigned by the human resources department at the time of hiring.

9.      The accounts receivable master file is reconciled to the general ledger on a monthly basis.

Required

For each internal control, identify the type(s) of specific control activity (or activities) to which it applies (such as proper authorization and adequate documents and records).

For each internal control, identify the transaction-related management assertion(s) to which it applies.

Answer 1

1. Sales invoices are matched with shipping documents by the computer system and an exception report is generated.

Specific control activity: Adequate documents and records

Transaction-related management assertion: Occurrence

Explanation: An exception report is generated to match sales invoice with shipping documents by the computer system to ensure adequate documentation and records

2. Receiving reports are prenumbered and accounted for on a daily basis.

Specific control activity: Adequate documents and records

Transaction-related management assertion: Completeness and Timing

Explanation: On a daily basis reports are recorded to checks completeness and timing

3. Sales invoices are independently verified before being sent to customers.

Specific control activity: Independent check on performance

Transaction-related management assertion: Accuracy

Explanation: Independent check on performance of the sales invoices before being sent to customers to ensure accuracy

4. Payments by check are received in the mail by the receptionist, who lists the checks and restrictively endorses them.

Specific control activity: Separation of duties

Transaction-related management assertion: Completeness

Explanation: Separation of duties to ensure completeness of assigned tasks

5. Labor hours for payroll are reviewed for reasonableness by the computer system.

Specific control activity: Proper authorization of transaction related activities

Transaction-related management assertion: Accuracy/Occurrence

Explanation: Proper authorization of transaction related activities to ensure accurance and occurence of the transactions

6. Checks are signed by the company president, who compares the checks with the underlying supporting documents.

Specific control activity: Independent checks on performance; Seperation of duties

Transaction-related management assertion: Accuracy/Occurrence

Explanation: Independent checks on performance with the related documents to ensure accurancy and occurence of the transactions

7. Unmatched shipping documents are accounted for on a daily basis.

Specific control activity: Physical control over documents and records

Transaction-related management assertion: Timing/ Completeness

Explanation: Physical control over documentation and records to check unmatched shipping documents on a daily routine to ensure completeness and it's timings

8. The computer system verifies that all payroll payments have a valid employee identification number assigned by the human resources department at the time of hiring.

Specific control activity: Adequate separation of duties

Transaction-related management assertion: Occurrence

Explanation: Adequate separation of duties on the payroll payments to ensure occurrence

9. The accounts receivable master file is reconciled to the general ledger on a monthly basis.

Specific control activity: Independent checks on performance

Transaction-related management assertion: Posting & summarization

Explanation: Independent checks on performance of accounts receivable master file reconcillation with general ledger to ensure it's postings and summarization