1. The following are internal control procedures found in the purchases and payment process of your auditee, ABC Inc. (ABC), and the internal control weaknesses discovered during your audit. Control: A receiver who accepts the goods into the warehouse verifies that the quantity of goods received matches the bill of lading (BL) and signs on behalf of ABC for receipt of the goods listed on the BL. If there is a discrepancy in the quantity received, the receiver does not sign the BL; the BL is sent to the buyer to resolve the problem with the vendor. The receiver also matches the BL to the authorized purchase order (PO) to verify that it is an authorized purchase. Goods received will be stored in the warehouse. BL: a legal document issued by a carrier to a shipper that details the type, quantity and destination of the goods being carried. BL also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination. Control Weakness 1: The receiver does not match the BL to an authorized PO. Control Weakness 2: Access to the warehouse is not controlled and anyone can enter and leave at any time. Required (6 marks): For each control weakness: a. Describe the control risk that exists because of the weakness - what could go wrong? b. Explain whether a monetary financial statement misstatement could result because of the weakness, and, if so, what it would be. c. Describe in detail the impact the weakness will have on your other audit procedures. 1. The following are internal control procedures found in the purchases and payment process of your auditee, ABC Inc. (ABC), and the internal control weaknesses discovered during your audit. Control: A receiver who accepts the goods into the warehouse verifies that the quantity of goods received matches the bill of lading (BL) and signs on behalf of ABC for receipt of the goods listed on the BL. If there is a discrepancy in the quantity received, the receiver does not sign the BL; the BL is sent to the buyer to resolve the problem with the vendor. The receiver also matches the BL to the authorized purchase order (PO) to verify that it is an authorized purchase. Goods received will be stored in the warehouse. BL: a legal document issued by a carrier to a shipper that details the type, quantity and destination of the goods being carried. BL also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination. Control Weakness 1: The receiver does not match the BL to an authorized PO. Control Weakness 2: Access to the warehouse is not controlled and anyone can enter and leave at any time. Required (6 marks): For each control weakness: a. Describe the control risk that exists because of the weakness - what could go wrong? b. Explain whether a monetary financial statement misstatement could result because of the weakness, and, if so, what it would be. c. Describe in detail the impact the weakness will have on your other audit procedures
