A. Sometimes during the course of an assurance engagement, auditors find controls that are either designed inadequately or are operating ineffectively. These findings are generally referred to as observations. Under what circumstances should the auditor report an observation to the following groups:

i. Outside auditors

ii. Board of directors

iii. To the SEC

B. You are performing an assurance engagement of your Company's Cash Disbursements department with the Treasury organization. This department typically makes 1,000 wire transfers each month to pay $10-100 million worth of bills. The audit team is identifying the potential risks inherent with the operation of this department. They are evaluating risks based on "impact" and "likelihood''. You are asked to give an example of a risk associated with this department that falls into the following categories (Be sure to explain why):

i. High impact/Low likelihood

ii. Low or medium impact/Low or medium likelihood