Auditing Cases, An Interactive Learning Approach, Seventh Edition.

Oilfields-R-Us, Inc. Evaluation of Management Review Controls

PART B Do NOI begin this part of the case until instructed to do so After receiving feedback from the external auditor on the documentation of the management review control (MRC) over the allowance for doubtful accounts, Emma, the Company's controller, has provided you with this updated description of the MRC. REVISED CONTROL DESCRIPTION Management Review Control Over the Allowance for Doubtful Accounts To ensure appropriate valuation of accounts receivable, management performs a quarterly review of the calculation for the allowance for doubtful accounts. The inputs, activities, and outputs of this review are as follows: Inputs On a quarterly basis, Tyler, the AR clerk, creates an aged AR schedule and calculation of the allowance for doubtful accounts. Tyler agrees total AR per the aging schedule to the trial balance and foots and crossfoots the schedule before providing the schedules to Gavin. Specific quarterly review activities Gavin, the CFO, obtains schedules from Tyler and 1) reviews each of the percentage assumptions for reasonableness based on experience, 2) compares each aging category's total balance to the average corresponding aging category balance from the previous two years, 3) considers extemal factors affecting the industry and specific customers, and 4) identifies differences (i.e., deviations) as either any aging category whose balance exceeds the two-year average by greater than 2 percent or any other specific transactions or customer balances that appear unusual. Outputs Gavin (CFO) discusses identified deviations with Emma (controller) and Tyler (AR clerk).After resolving any identified deviations, Gavin signs off on the schedules. REQUIRED - PART B [1] Based on the revised management review control (MRC) description provided in Part B, what is (a) the control's purpose, (b) the risk(s) of material misstatement addressed by the control, and (c) the significant account(s) related to the control. [a] Control's purpose: [b] Risk(s) of material misstatement addressed by the control: [c] Significant account(s) related to the control