2. For each of the three revenue risks identified by the engagement team, address the following: A. Was the engagement team's assessment of the evaluation of the design of each control appropriate (i.e., does the control identified by the team address the specific risk of material misstatement and associated assertion)? B. Was the engagement team's assessment of the risk associated with each control appropriate? C. Was the team's interim and rollforward planned procedures to test the operating effectiveness of each control appropriate considering the risk associated with the control? Risk #2 Identification of risk of material misstatement Revenue is recorded for orders not shipped or fictitious sales. Relevant assertion Occurrence Significant risk? Yes Risk of material misstatement because of Yes fraudz Control #2: The "Orders Shipped & Invoiced Report" is reviewed by the warehouse director on a daily basis for Control activity that addresses risk of unusual items and specifically for invoices recorded that don't have corresponding shipping documents, evidenced misstatement by the warehouse director's initials on the report, which is maintained. Does the control rely on information used in Yes - The "Orders Shipped & Invoiced Report," which details orders that were shipped and invoiced for a given the control (or IUC)? If yes, list relevant day. The report is automatically generated by the Warehouse K system. information Because the operating effectiveness of the control is dependent upon the accuracy and completeness of the IPE, Will we obtain audit evidence of the accuracy we will test the controls around accuracy and completness. As the IPE is a system generated report, refer to our testing of the company's IT general contols. In addition, we will test the controls around report logic, parameters, and completeness of information used in the and the source data. control by testing controls? Is the control automated? Relevant application system (if we are testing Warehouse K System, which is subject to IT controls and tested within the IT controls workpaper. Information used in the control through tests Lof controls and/or the control is automated) On the basis of the following factors, we concluded that the control is appropriately designed to address the stated risk of material misstatement: 1. The warehouse director has been with the company for over 10 years and has been acting in this current role for the last five. The warehouse director is in charge of overseeing operations at all five warehouses and directly supervises the warehouse managers. The director is knowledgeable of the business and focuses reviews on activity that seems unusual given the customer and quantities purchased. The review is directed to the identification of unusual trends and thus appropriately addresses the related risk of material misstatement and assertion. Tests of controls: evaluation of design 2. Control is performed on a daily basis. 3. Control identifies exceptions after they have occurred (i.e., its a detective control), yet given the frequency of performance, it would identify errors in a timely manner. 4. Although the control entails the review of daily revenue activity, it is done on a transaction by transaction basis, and as such it is sufficiently precise to mitigate the risk. 5. Control involves the judgment of the warehouse director since there is no specific threshold set. However, since all transactions are evaluated and ZOU Fencing has a cyclical business, the report results are predictable. Risk Associated with the Control Tests of controls: planned operating effectiveness testing Higher The OE testing of this control will be apportioned through the entire year and thus no rollforward procedures are needed since 3 of our selections were made within the last 2 weeks of December and no issues were noted with those or any selections made. The procedures made on the selections are as follows: 1. Select 40 days out of the year. Make sure a few selections are made within two weeks of the balance sheet date. 2. For each day selected, obtain the "Orders Shipped & Invoiced Report" reviewed by the warehouse director. Inspect the report for evidence of review by the warehouse director by noting comments, pencil markings, or email correspondence of follow up inquiries. Inquire of the warehouse director as to what he did to review each report. 3. Reperform the warehouse director's procedures by reviewing the report for any unusual transactions or invoices recorded that do not have corresponding shipping documents and investigate these transactions. 4. Determine whether there was timely evidence of review by the warehouse director (typically in the form of physical sign off by the warehouse director on the report and dated on the day following the report date)