You have been asked to provide guidance to your staff with respect to which controls
You have been asked to provide guidance to your staff with respect to which controlsshould be audited in the current year (versus prior years). The following internal controlswere tested in prior audits. Evaluate each internal control and determine which controlsmust be tested in the current year’s audit of the December 31, 2008, financial statements.Clearly explain why testing is or is not required in the current year.1.The general ledger accounting software system automatically reconciles totals ineach of the subsidiary master files for accounts receivable, accounts payable, andinventory accounts to the respective general ledger accounts. This control was most recenttly tested in the prior year. No changes to the software have been made since testingand there are strong controls over information technology (IT) security and softwareprogram changes.2.The accounts payable clerk matches vendor invoices with related purchase ordersand receiving reports andinvestigates any differences noted. This control was tested in the 2007 fiscal yearendaudit. No changes to this control or personnel involved have occurred since testing wasperformed.3. The sales system automatically determines whether a customer’s purchase orderand related accounts receivable balance are within the customer’s credit limit. The risk ofshipping goods to customers who exceed their credit limit is deemed to be a significantrisk. This control was last tested in the December 31, 2006, financial statement audit.4.The perpetual inventory system automatically extends the unit price timesquantity for inventory on hand. This control was last tested in the audit of December 31,2006, financial statements. During 2007, the client made changes to this automatedinformation system.5.The client’s purchase accounting system was acquired from a reputable softwarevendor several years ago. This system contains numerous automated controls. Theauditor tested those controls most recently in 2007. There have been no software updatessince purchase of the software.Required: In addition to providing guidance for each of the points above, provide guidance thatcould be applied to other tests of internal controlto indicate which need to be tested inthe current year.
