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【简答题】
For each of the following independent cases, state the highest level of deficiency that you believe the circumstances represent: a control deficiency , a significant deficiency , or a material weakness . Case 1: The company processes a significant number of routine intercompany transactions. Individual intercompany transactions are not material and primarily relate to balance sheet activity——for example, cash transfers between business units to finance normal operations. A formal management policy requires monthly reconciliation of intercompany accounts and confirmation of balances between business units. However, there is not a process in place to ensure performance of these procedures. As a result, detailed reconciliations of intercompany accounts are not performed on a timely basis. Management does perform monthly procedures to investigate selected large-dollar intercompany account differences. In addition, management prepares a detailed monthly variance analysis of operating expenses to assess their reasonableness. Case 2: During its assessment of internal control over financial reporting, management identified the following deficiencies. Based on the context in which the deficiencies occur, management and the auditors agree that these deficiencies individually represent significant deficiencies: Inadequate segregation of duties over certain information system access controls. Several instances of transactions that were not properly recorded in the subsidiary ledgers; the transactions involved were not material, either individually or in the aggregate. No timely reconciliation of the account balances affected by the improperly recorded transactions. Case 3: The company uses a standard sales contract for most transactions. although sales personnel are allowed to modify sales contract terms as necessary to make a profitable sale. Individual sales transactions are not material to the entity. The company’s accounting personnel review significant or unusual modifications to the sales contract terms, but they do not review changes in the standard shipping terms. The changes in the standard shipping terms could require a delay in the timing of revenue recognition. Management reviews gross margins on a monthly basis and investigates any significant or unusual relationships. In addition, management reviews the reasonableness of inventory levels at the end of each accounting period. The company has experienced limited situations in which revenue has been inappropriately recorded in advance of shipment, but amounts have not been material. Case 4: The company has a standard sales contract, but sales personnel frequently modify the terms of the contract. Sales personnel frequently grant unauthorized and unrecorded sales discounts to customers without the knowledge of the accounting department. These amounts are deducted by customers in paying their invoices and are recorded as outstanding balances on the accounts receivable aging. Although these amounts are individually insignificant, they are material in the aggregate and have occurred consistently over the past few years. Case 5: The company has found it necessary to restate its financial statements for the past two years due to a material overstatement of revenues two years ago (and an equal understatement last year). The errors are due to sales of certain software that allowed the purchasers extremely lenient rights of return. The errors were discovered shortly following the end of the current accounting year. Members of management indicated that the misstatements occurred because they simply didn’t know the accounting rules. Now they know the rules and they won’t let it happen again.
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