Oceanview Marine Company 10-8

Control Environment — Summary VM 2/22/2019

December 31, 2018

Level of Control

Effective Ineffective Comments

1. General:  ☐

Management’s philosophy and Very effective, careful and responsive

operating style  ☐ to auditor’s recommendations; W/P 10-
1

Organizational structure Overall effective, still need to keep an

 ☐ eye out for a family collusion; W/P 10-2

Methods to communicate the Good communication, the company is

assignment of authority and  ☐ not large; W/P 10-2
responsibility

Management control methods  ☐ W/P 10-2

Audit committee  ☐ No committee; W/P 10-3

Internal audit ☐  no internal audit role; W/P 10-3

Personnel policies and procedures Loyal and diligent employees; W/P 10-
 ☐ 3

External influences  ☐ Normal, within reason; W/P 10-4

2. Computer Hardware and Systems

 ☐ W/P 10-5
Software

3. Computer Software Applications  ☐ W/P 10-6

4. IT Department ☐  W/P 10-7

Conclusions:
Very effective, except the family ties between the company’s management. There is no internal audit staff, but
the controller is able to oversee the accounting due to the company’s size. Employees are loyal and diligent,
Management is careful at takin risk and responsive to the auditor.

Current workpapers — assess control risk  Page 60

 Oceanview Marine Company 13-3
Internal Control Questionnaire: VM 2/22/2019
Acquisitions
December 31, 2018

Control Objectives and Questions * YES NO REMARKS

Approved by Cynthia
(1) Are purchases transactions supported by approved
E  ☐
purchase orders?
Done by Done
(2) Are documents cancelled to prevent re-use? E  ☐
Verified by Cynthia
(3) Are receiving reports prenumbered and properly
Co  ☐
accounted for?
Performed by Cynthia
(4) Are receiving reports controlled in a manner that helps
Co  ☐
assure that all goods received are recorded?
Done by Ray
(5) Is there internal verification of the calculations, prices,
A  ☐
and quantities on vendors’ invoices?
Reviewed by Cynthia
(6) Does someone independent of the recording of
purchases function verify that the proper accounts have Cl  ☐
been debited and credited for purchases transactions?

(7) Is there an independent comparison of dates on

receiving reports to dates recorded in the voucher T ☐ 
register?

(8) Is there a policy requiring recording of purchases on a

daily basis as close to time of receipt of goods as T ☐ 
possible?
Done automatically by
(9) Is the voucher register independently footed and posted
P  ☐ acct system
to the general ledger?
Ray reconciles, Cynthia
(10) Is an independent reconciliation of the accounts reviews
payable subsidiary records and the general ledger P  ☐
performed regularly?

* Audit Objective for Tests of Controls and Substantive Tests of Transactions:

Accuracy Existence or occurrence
Classification Posting & summarization
Completeness Timing

Current workpapers — assess control risk  Page 61

 Oceanview Marine Company 13-4
Preliminary Assessment of Control Risk: VM 2/22/2019
Acquisitions
December 31, 2018

Objectives:

Summarization
Completeness

Classification

Posting and
occurrence
Existence/

Accuracy

Timing
Existing Controls:
1. Purchase transactions are supported by approved purchase orders
 ☐ ☐ ☐ ☐ ☐
2. Documents are cancelled to prevent re-use
 ☐ ☐ ☐ ☐ ☐
3. Receiving reports are prenumbered and properly accounted for
☐  ☐ ☐ ☐ ☐
4. Receiving reports are controlled to ensure that all goods received are
recorded ☐  ☐ ☐ ☐ ☐
5. Internal verification of details on invoice
☐ ☐  ☐ ☐ ☐
6. Independent verification of account classification
☐ ☐ ☐  ☐ ☐
7. Voucher register is footed and posted by computer
☐ ☐ ☐ ☐ ☐ 
8. Independent reconciliation of NP subsidiary records and general ledger
performed regularly ☐ ☐ ☐ ☐ ☐ 
9.
☐ ☐ ☐ ☐ ☐ ☐

Control Deficiencies:
1. No company policy requiring recording of purchases as close to time of
receipt of goods as possible ☐ ☐ ☐ ☐  ☐
2. No independent comparison of dates on receiving reports to dates
recorded in voucher register ☐ ☐ ☐ ☐  ☐
3.
☐ ☐ ☐ ☐ ☐ ☐
4.
☐ ☐ ☐ ☐ ☐ ☐

Preliminary assessment of control risk:

L L M M H L
Enter H (high), M (medium), or L (low) in each column

Current workpapers — assess control risk  Page 62

 Oceanview Marine Company
Audit Program (planning format):
Tests of Controls for Acquisitions
Objectives
Existence/occurrence—
recorded acquisition
transactions are for goods
and services actually
received
Completeness—all
acquisition transactions
are recorded
Accuracy—acquisition
transactions are recorded
at the correct amounts
Classification—
acquisition transactions
are debited and credited to
the proper accounts
Timing—acquisition
transactions are recorded
on the correct dates
Posting and
summarization—
acquisitions are correctly
totaled in the voucher
register and posted to the
G/L and subsidiary
records
Current workpapers — tests of controls and substantive tests of transactions  Page 62
14-1
VM 2/22/2019
December 31, 2018
Existing Control(s) Tests of Control(s)
Purchases transactions are supported Examine purchase orders for indication of
approval. Purchases transactions are
by approved purchase orders (W/P 13-
supported by approved purchase orders
3, #1).
Documents are cancelled to prevent re- Examine documents for signs of cancellation
use (W/P 13-3, #2).
Receiving reports are prenumbered and Examine receiving reports, are they all in order
and present?
accounted for regularly (W/P 13-3, #3).
Receiving reports are controlled in a Observe process of preparation and routing of
manner that helps assure that all goods receiving reports
received are recorded (W/P 13-3, #4).
Internal verification of invoice Examine vendor's invoices for indication of
internal verification
information (W/P 13-3, #5).
Independent verification that the proper Inquire of Cynthia if does it properly and
regularly
accounts have been debited and
credited for purchases transactions
(W/P 13-3, #6).
None. None
Voucher register is independently Test computerized footing and posting of
purchases transactions
footed and posted to the general ledger
(W/P 13-3, #9).
Examine the records, look for signs of
Independent reconciliation of A/P reconciliation
subsidiary records and the G/L
performed regularly (W/P 13-3, #10).
 Oceanview Marine Company 14-2
Audit Program (planning format): VM 2/22/2019
Substantive Tests of Acquisitions Transactions
December 31, 2018

Objectives Substantive Tests of Transactions

Vouch from a sample of entries in the voucher register to the receiving reports to verify that
Existence/occurrence—
goods have been received. Look at the assets list and check the physical presence,
recorded acquisition visually inspect them.
transactions are for goods
and services received

Trace from a sample of receiving reports to entries in the voucher register. Make sure that
Completeness—all
any assets that are present are adequately recorded.
acquisition transactions
are recorded

Take a sample of entries in the voucher register and do the following:

Accuracy—acquisition
transactions are recorded
at the correct amounts
compare amount recorded in register with total on vendor's invoices.
re-foot the vendor's invoice.
compare prices per unit on invoice with vendor's price quote.
compare quantities on invoice with receiving report and purchase order

Take a sample of entries in the voucher register, examine the vendor’s invoice or other
Classification—
supporting documents to determine that the proper accounts were debited and credited
acquisition transactions
are debited and credited to
the proper accounts

For a sample of acquisition transactions, compare the dates the assets were received and
Timing—Acquisition
the dates the assets were recorded
transactions are recorded
on the correct dates

Foot the voucher register and trace postings of totals to the purchases , accounts payable,
Posting and accounts in the general ledger
summarization—
acquisitions are correctly
totaled in the voucher
register and posted to the
G/L and subsidiary records

Current workpapers — tests of controls and substantive tests of transactions  Page 63