• 10-32

  (Components of internal control) Internal controls can be categorized using the following framework.

  1. Control environment
  2. Risk assessment
  3. Information and communication
  4. Control activities

     4.1.

     Authorization

     4.2.

     Segregation of duties

     4.3.

     Information processing controls

     4.3.1.	Computer general controls
     4.3.2.	Computer application controls
     4.3.3.	Controls over the financial reporting process

     4.4.

     Physical controls

     4.5.

     Performance reviews

     4.6.

     Controls over management discretion in financial reporting

  5. Monitoring
  6. Antifraud programs and controls

  Following is a list of controls prescribed by Waterfront, Inc.

  1. Management has established a code of conduct that includes rules regarding conflicts of interest for purchasing agents.
  2. Waterfront has established a disclosure committee to review the selection of new accounting policies.
  3. Any computer program revision must be approved by user departments after testing the entire program with test data.
  4. The managers of each of Waterfront's manufacturing departments must review all expenditures charged to their responsibility center weekly.
  5. The CEO, CFO, and controller review the financial consequences of business risks annually to ensure that controls are in place to address significant business risks.
  6. Human resources focuses on ensuring that accounting personnel have adequate qualifications for work performed in billing and accounts receivable.
  7. Security software limits access to programs and data files, and keeps a log of programs and files that have been accessed, which is then reviewed by the security manager daily.
  8. A computer program prints a daily report of all shipments that have not yet been billed to customers.
  9. The controller reviews sales and collections bimonthly.
  10. The computer compares the information on the sales invoice with underlying shipping information.
  11. Customer billing complaints are directed to internal audit for follow-up and resolution.
  12. The documentary transaction trail for all credit sales is documented in company policy manuals.
  13. A committee of the board of directors evaluates and monitors business risks.
  14. Access to spreadsheets used in the financial reporting process is limited and spreadsheets are tested with test data on a quarterly basis.

  Required

  1. Indicate the category of internal control applicable to each procedure using the framework above.
  2. Identify an assertion to which each procedure pertains (some procedures may have a pervasive impact on multiple assertions).