Assume that management is gathering evidence as part of its

process for assessing the effectiveness of internal control over financial

reporting. The company is a manufacturer of highdollar specialized

machines used in the medical profession. The following table identifies important controls that management is testing regarding accounts

related to revenue recognition, accounts receivable, and other salesrelated activities. The first column describes the control, and the second

column describes the test results. Based on the test results, determine

the conclusion that management should likely make about the deficiency. Is it a control deficiency, a significant deficiency, or a material

weakness?

Control Testing Over Revenue

Control Tested Test Results

A All sales over $ require computer check of outstanding balances to

see if approved balance is exceeded.

Tested throughout year with a

sample size of thirty. Only three

failures, all in the last quarter, and all

approved by sales manager.

B The computer is programmed to

record a sale only when an item is

shipped.

Sampled ten items during the last

month. One indicated that it was

recorded before it was shipped.

Management was aware of the

recording.

C All prices are obtained from a standardized price list maintained within

the computer and accessible only by

the marketing manager.

Management selected forty invoices

and found five instances in which the

price was less than the price list. All

of the price changes were initiated

by salespeople.

D Sales are shipped only upon receiving an authorized purchase order from

customer.

Management selects fifteen transactions near the end of each quarter.

On average, three to four are shipped

each quarter based on salespersons

approval and without a customer

purchase order.