14A-1 A summary of the controls for the acquisition cycle of Keystone C Computers & Networks, Inc., appears on pages 602-603.

Required: a. For the following three controls over the acquisition cycle, indicate one type of error or fraud that the control serves to prevent or detect. Organize your solution as follows:

Control Error or Fraud Controlled

1. Computer matches information from vendors invoice with purchase order and receiving data.

2. The computer assigns numbers to receiving reports.

3. Checks are mailed by check signer.

b. For each of the controls described above, indicate how the auditors could test the control. Organize your answer as follows:

Control Tests of Controls

1. Computer matches information from vendors invoice with purchase order and receiving data.

2. The computer assigns numbers to receiving reports.

3. Checks are mailed by the check signer.

14A-2 As indicated on the control risk assessment working paper on page 602, the auditors identified two weaknesses in internal control over the acquisition cycle of KCN. Describe the implications of each of the two weaknesses in terms of the type of errors or fraud that could result.

Pg. 602

Internal Controls Planned Assessed Level of Control Risk

Approved vendors are selected by purchasing manager Moderate Risk due to Valuation and Accuracy who also purchases goods.

Vendors statements are not reconciled to the accounting records. Moderate Risk due to Valuation and Accuracy. Low risk due to Existence Moderate Risk due to Completeness