BILTRITE CASE CHAPTER 6 MODULE 2

Module II PART I 1. Sales Processing: (See Exhibit BR.7) HINT: invoice, bills of lading Ref 1 Describe weakness There is no indication that the home office has been notified of credit approval or whether this sale takes the customer beyond the maximum credit limit. Invoices are not matched with bills o f lading. Identify assertion and explain Valuation accounts receivable may be overvalued and thus a collectability issue Existence- If it isnt valid than there is no way of telling that the goods are shipped.

There isnt any input editing in it, and there is no way of determining if the customers numbers are correct, or if the product numbers are correct. Bills of lading arent accounted for.

Valuation- Customers accounts might not be correct.

Completeness- Products might be shipped without be recorded, and that could overstate the inventory count.

Cash Receipts Processing: (See Exhibit BR.8) Hint: checks and input errors

Ref 1

Describe weakness The customers checks that are coming arent prelisted

Identify assertion and explain Valuation- Account receivable are going to be overstated.

Purchases and Accounts Payable: (See Exhibit BR.9) Hint: comparisons of(for strengths) Ref 1 Describe weakness Identify assertion and explain

Ref 1

Describe strength Purchasing help to insure that the good were sent and received by the correct person.

Identify assertion and explain Existence- validity of receivable.

BILTRITE CASE CHAPTER 6 MODULE 2

Payment Processing: (See Exhibit BR.10) Hint: checks, remittance advices Ref 1 2 3 Checks are sent directly to the vendor after signing. It helps insure that no one else using the check for anything else. Remittance advice is compared to checks with proper documentation which ensures the check amounts and remittance detail is accurate. Describe strength Treasurer reviews and approves documentation before check signing. Helps to insure validity of cash disbursements.

Payroll Processing: (See Exhibit BR.11) Hint: timecards (weakness) Hint: payroll distribution, edits (strengths) Ref 1 Describe weakness Time cards should be approved daily, instead of weekly, this help with the supervisor having to keep track of everyone daily instead of weekly. Identify assertion and explain Occurrence- workers hours may be overstated or understated.

Ref 1

Describe strength I f yo u w a n t t o i n p u t s o m e t h i n g i n t o p a y r o l l , i t m u s t b e d o n e b y a d m i n i s t r a t i o n .

2 3

All checks are reviewed before they are signed. The company has a computer do the payroll summery, and then its compare to the actual time cards tape.

BILTRITE CASE CHAPTER 6 MODULE 2

Other Strengths and Weaknesses Directly Related to the Processing and Recording of Transactions in More than One Process: Hint: documents, segregation duties (this is only area you should be referring to this) Ref 1 2 Describe strength If an error occurs it cannot be altered because it stops the entire process.

PART II Strengths and Weaknesses Related to the Control Environment of COSO There are seven principles associated with the ControlEnvironment: Integrity and Ethical Values Board of Directors Management Philosophy and OperatingStyle Organizational Structure Financial Reporting Competencies Authority and Responsibility Human Resources In Biltrite, some of the strengths and weaknesses related to these principles include: Ref 1 Describe strength Lawton and Groth have intensive efforts to improve internal control over financial reporting, which sends an appropriate message to the organization about the value of internal control.

The audit committee has independent board members.

The Human resource director is in charge if hiring and firing. This helps match employees with job descriptions and reduces the amount of errors in each department.

4 5

There training is good so that means there should be a good worth ethic.

BILTRITE CASE CHAPTER 6 MODULE 2

Ref 1

Describe weakness Lawton does not see much value in the financial reporting function, reflecting an inappropriate philosophy. The company doesnt have much knowledge of the industry itself.

3 The audit committee has little control of its internal auditing.

The CEO is the chair of the board, which reduces the independence of the board

Additional information on Control Environment, the auditor may need to inquire of management and get appropriate support for: Ref 1 What additional questions would you ask related to Control Environment?

Does the company employ or otherwise retain individuals who possess the required competencies related to financial reporting? 2 3 Does Biltrite have the skills to report good finical statements? Is the board of directors independent?

How is there monitoring of honesty and intergredy?

The principles associated with Risk Assessment include:

Having clearly stated financial reporting objectives Identifying and analyzing risk to the achievement of financial reporting objectives Managements explicit consideration of fraud in its risk assessment process

Additional information on Risk Assessment, the auditor may need to inquire of management and get appropriate support for:

Ref 1

What additional questions would you ask related to Risk Assessment? Does the companys assessment of fraud risks consider incentives and pressures, attitudes, and rationalizations, as well as opportunity to commit fraud?

2 3 4

Does the financial statement represent materiality? Does the company follow GAAP when the do there financials? Is information detailed?

Is information classified?

BILTRITE CASE CHAPTER 6 MODULE 2

Strengths and Weaknesses Related to the Information and Communication Component of COSO: The principles associated with Information and Communication include: Pertinent financial reporting information is indentified, captured, used, distributed in a manner that supports the achievement of financial reporting objectives Pertinent internal control information is indentified, captured, used, distributed in a manner that supports the achievement of financial reporting objectives Internal communications support an understanding of internal controls at all levels of the organization Matters affecting financial reporting are communicated with outside parties Additional information on Information and Communication, the auditor may need to inquire of management and get appropriate support for:

Ref 1

What additional questions would you ask related to Information and Communication? Does management communicate to all personnel, particularly those in roles affecting financial reporting, that internal control over financial reporting must be taken seriously?

3 4

Strengths and Weaknesses Related to the Monitoring Component of COSO: The principles associated with Monitoring include: Ongoing and Separate Evaluations Reporting Deficiencies

Additional information on Monitoring, the auditor may need to inquire of management and get appropriate support for:

Ref 1

What additional questions would you ask related to Monitoring? Are findings of internal control deficiencies reported to the individual who owns the process and related controls, and who is in position to take corrective actions? Are the findings also are reported to at least one level of management above the process owner?

2 3 4

Do the computer systems have a program where they can monitor?

BILTRITE CASE CHAPTER 6 MODULE 2

2.

Based on your review of the accounting information system and existing control procedures, in what specific transaction areas are you willing to assess control risk less than high?