ISBN 978-1-29204-015-8
9 781292 040158
Lakeside Company
Case Studies in Auditing
John M. Trussel J. Douglas Frazer
Twelfth Edition
QUESTION
(5) Is the recordkeeping function
independent of the
custody function at
all points throughout
the system?
(6) Are all
mathematical
computations
independently
verified?
(7) Does recordkeeping begin at the
origin of the
transaction?
(8) Are all
transactions
authorized?
(9)
YES
NO
COMMENT
In the space below, indicate any other specific internal control features that
have been built into this system.
(10) In the space below, indicate any other specific internal control weaknesses
that appear to be present in this system.
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Exhibit 6
Abernethy and Chapman
INTERNAL CONTROL Control Risk Matrix Revenue Cycle
Client: Lakeside
Timing:
Classification:
Posting and
Summarization:
Accuracy:
Deficiencies
Controls
Completeness:
Internal Control
Occurrence:
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indicated that he wanted the systems to improve as the organization grew. Cline was well
aware that relations with the client would be improved if the auditing firm could propose
viable enhancements to the company's controls.
Finally, at this same meeting, the audit team decided that the existence of some of
the accounts receivable balances would be confirmed directly with the Lakeside
customers. Andrews suggested that interim balances as of November 30, 2012 (instead of
final balances as of December 31, 2012), be confirmed unless severe internal control
problems were encountered. The decision as to whether confirmations should be positive
or negative, along with the specific number of accounts to be confirmed, was left to
Mitchell's judgment, subject to the approval of Cline and Andrews.
Mitchell began her evaluation of internal control by identifying the control
procedures incorporated within Lakeside's revenue and cash receipts cycle (see Exhibits 3
and 4). These systems record both the increases and decreases made to accounts
receivable. In her opinion, a number of the procedures appear to be well designed for a
company the size of Lakeside, but several problems do exist. For example, no separate
credit and collection departments are maintained. Also, the limited size of the company's
staff reduces the number of opportunities that are available for dividing responsibilities.
She began testing the specific control policies and procedures by seeking
information that would enable her to answer control questionnaires such as the one
presented in Exhibit 1. The CPA firm had designed each questionnaire with potential
control problems in mind. Mitchell anticipated being able to complete each of these
documents after a series of conferences with Lakeside employees.
On November 3, 2012, Mitchell visited the Lakeside headquarters to discuss
internal control matters with several responsible officials. Her first conversation was with
George Miller, assistant to the president. (Refer to Exhibits 3 and 4.)
AUDITOR:
MILLER:
AUDITOR:
MILLER:
AUDITOR:
MILLER:
AUDITOR:
MILLER:
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