Auditing Theory Fields Bakery Miller's Breads Accounts Payable Group Case Fall 2019 You work for a small public accounting firm. You and a few colleagues have been assigned to a new client, Fields Bakery. More specifically, your team is assigned to the location audit of a subsidiary of Field's Bakery, Miller's Breads. Your team is in the planning phase of the audit, and considering the client's internal controls to develop an audit strategy and audit program Your manager has asked you to review the documentation from the audit file (below), and develop an audit plan for the internal controls work on the Accounts Payable business cycle for Miller's Breads. Since the client is aiming for an initial public offering in the near future, your manager has asked that you consider if there are any design deficiencies where the client could implement changes to improve its internal control environment. Fields Bakery, headquartered in Atlanta, GA acquired Miller's Breads, located in Niceville, Florida in 2015. Fields Bakery produces a variety of baked goods including cakes and pastries which are sold to retail groceries and bakery shops across the Southeast US. Miller's Breads specializes in artisan breads, which has been a nice addition to Fields' existing product line. Similar to Fields Bakery, Miller's Breads sells its products primarily to high-end bakeries for resale to customers. In 2016, the company expanded the production facilities at Miller's Breads to accommodate increased production of all the consolidated company's products. Since the acquisition, little has been done to integrate the two companies' accounting systems and processes. Each location includes a manufacturing facility where the baked goods are produced. Each facility includes a storage warehouse to store the raw ingredients used in production and a temperature-controlled storage facility for finished products awaiting shipment Additionally, each location has a small office adjacent to the manufacturing facility where sales and administrative employees are located. Accounting Personnel Fields Bakery has an Accounting Manager, Tonya Smith, and three Accounting Staff. Tonya oversees the daily accounting operations and handles any unique or complex transactions. The Accounting Staff carry out duties for standard transactions such as recording journal entries and reconciling accounts. Miller's Breads has only an Accounting Manager, Susan Rockwell, and no Accounting Stafr since it is a small operation. Susan has been with the company for 15 years. She is very knowledgeable and handles all the accounting tasks related to the Niceville facility. Since the expansion, she has had to work quite a bit of unpaid overtime to keep up with the increased volume of transactions. Brenda Thompson is the Controller, located at Fields Bakery in Atlanta. Brenda is very involved in the supervision and review of Fields' accounting department. She reviews Tonya's work and also performs secondary reviews on the accounting staffs' work as well. However, since Susan is so efficient and independent, Brenda only visits Miller's accounting department twice per year to check in. Accounting Systems Fields Bakery uses Intacct Accounting General Ledger (GL) software which is a web-based hosted application. Miller's Breads uses QuickBooks GL which is also a web-based hosted application. Only the accountants at each respective location have access to the GL. That is, the accountants at Fields Bakery can only access Intacct and the accountants at Miller's Breads can only access Quickbooks. Maintaining two separate GL systems limits Brenda and Tonya's ability to review Miller's Breads' accounting records and it also sometimes causes confusion when upper management reviews reports from Miller's Breads. Accounts Payable Process-Miller's Breads Miller's Breads has one bank account with a local bank, Niceville Bank and Trust (NB&T). NB&T does not have an online banking platform, only traditional branch banking. Most of Miller's vendor payments are processed via check. Checks are typically signed by Miller's President, Dan Steel. However if Dan is out of the office, Susan also has the authority to sign checks. Susan and Dan are the only signatories listed on the bank account. Susan usually prepares an Accounts Payable account reconciliation on a quarterly basis. Other Information The company is planning to go public in 2019, so it's very important to the CEO, Mark Johnson, that the company improve its consolidated margins. He expects both facilities to operate in an efficient and consistent manner. He would like to simplify the process of meeting the control environment requirements under the Sarbanes-Oxley Act since this can be a costly undertaking. Student Requirements: Using the ROMM Template (Excel document) provided, prepare a risk analysis addressing "what could go wrong" for the Miller's Bread subsidiary described in the case. The analysis should identify the related assertions associated with cach risk (se Table 6-4 on page 192 of the textbook for a listing of assertions). Propose at least three "key" internal controls related to your business cycle Develop a control testing strategy to monitor the proposed controls. Be very specific in describing the audit procedures that will be used . Identify fraud risks and discuss those risks as they relate to the three factors of the frod triangle (Chapter 4, see page 112) Propose at least two entity level controls that will strengthen the company's internal control environment Deliver a presentation to the class to discuss your key findings from the activities listed above Grading Rubric: This assignment is worth 100 total points. Delivery of Presentation: 40 points Aesthetics and organization: Presentation media should clearly and effectively exhibit the team's work. You have creative control as to selecting your presentation media (excel, power point, etc.). Presentation materials should exhibit professional stylings (i.e., look like a presentation that you would expect to see in a professional workplace) and should be free of grammatical and spelling errors. Professionalism and poise: Presenters should share approximately equal time presenting the material, make frequent eye contact (not reading straight from notes/slides), and engage the class. Your presentation should last approximately 15-20 minutes. Technical Merit of Materials: 60 points Complete set of deliverables: All required elements of the assignment are addressed thoroughly (see bullets from "Student Requirements" section above.) Quality of deliverables; Presentation materials should reflect content that is thoughtful and thoroughly researched. It should be evident that your suggestions apply specifically to this case. You may use your textbook and additionally research on the internet. revenue process, accounting for prenumbered shipping documents provides reasonable assurance that all revenue is recorded (completeness) Similarly, reconciliation of the accounts receivable subledger to the general ledger accounts receivable account provides a control to help ensure that the occurrence assertion is met. Later chapters show relevant control activities in detail for each business process. TABLE 6-4 Assertions about Classes of Transactions and Events and Related Control Procedures Assertion Control Activities Occurrence Segregation of duties. Prenumbered documents that are accounted for Daily or monthly reconciliation of subsidiary records with independent review Prenumbered documents that are accounted for Segregation of duties. Daily or monthly reconciliation of subsidiary records with indepdent review Completeness Accuracy Internal verification of amounts and calculations. Monthly reconciliation of subsidiary records by an independent person General and specific authorization of transactions at important control points Procedures for prompt recording of transactions Internal review and verification. Chart of accounts. Internal review and verification Authorization Cutoff Classification perience? And by the way, welcome back! revenue process, accounting for prenumbered shipping documents provides reasonable assurance that all revenue is recorded (completeness). Similarly, reconciliation of the accounts receivable subledger to the general ledger accounts receivable account provides a control to help ensure that the occurrence assertion is met. Later chapters show relevant control activities in detail for each business process. TABLE 6-4 Assertions about Classes of Transactions and Events and Related Control Procedures Assertion Control Activities Occurrence Segregation of duties. Prenumbered documents that are accounted for Daily or monthly reconciliation of subsidiary records with independent review Completeness Prenumbered documents that are accounted for Segregation of duties Daily or monthly reconciliation of subsidiary records with indepdent review Internal verification of amounts and calculations Monthly reconciliation of subsidiary records by an independent person General and specific authorization of transactions at important control points Procedures for prompt recording of transactions Internal review and verification. Chart of accounts. Internal review and verification Accuracy Authorization Cutoff Classification perience? And by the way, welcome back! Search S AE Be careful-files from the Internet can conlain vinuses Unless you need to edit, s saler to say in Protected Vew Enable Editing 11 D Internal Control Audit Plan Purpose: The purpose of this worksheet is to present the nisks of matenal misstatement related to For each nsk we will (1) identity the relevant assertion, (2) identity whether the identitied isk is also a traud nsk, and 3) select the most relevant control that adaresses the risk Control Activity tfrom tab 2) that Addresses Risk of Material Misstatement Fraud Risk? Account Balance Business Cycle Identification of Risk of Material Misstatement CWhat Could Go Wrong) Relevant Assertion Description of fraud Risk Yes No 2 Business Cycle Controls 1 Risks of Misstatement eady ROMM Template mlata Auditing Theory Fields Bakery Miller's Breads Accounts Payable Group Case Fall 2019 You work for a small public accounting firm. You and a few colleagues have been assigned to a new client, Fields Bakery. More specifically, your team is assigned to the location audit of a subsidiary of Field's Bakery, Miller's Breads. Your team is in the planning phase of the audit, and considering the client's internal controls to develop an audit strategy and audit program Your manager has asked you to review the documentation from the audit file (below), and develop an audit plan for the internal controls work on the Accounts Payable business cycle for Miller's Breads. Since the client is aiming for an initial public offering in the near future, your manager has asked that you consider if there are any design deficiencies where the client could implement changes to improve its internal control environment. Fields Bakery, headquartered in Atlanta, GA acquired Miller's Breads, located in Niceville, Florida in 2015. Fields Bakery produces a variety of baked goods including cakes and pastries which are sold to retail groceries and bakery shops across the Southeast US. Miller's Breads specializes in artisan breads, which has been a nice addition to Fields' existing product line. Similar to Fields Bakery, Miller's Breads sells its products primarily to high-end bakeries for resale to customers. In 2016, the company expanded the production facilities at Miller's Breads to accommodate increased production of all the consolidated company's products. Since the acquisition, little has been done to integrate the two companies' accounting systems and processes. Each location includes a manufacturing facility where the baked goods are produced. Each facility includes a storage warehouse to store the raw ingredients used in production and a temperature-controlled storage facility for finished products awaiting shipment Additionally, each location has a small office adjacent to the manufacturing facility where sales and administrative employees are located. Accounting Personnel Fields Bakery has an Accounting Manager, Tonya Smith, and three Accounting Staff. Tonya oversees the daily accounting operations and handles any unique or complex transactions. The Accounting Staff carry out duties for standard transactions such as recording journal entries and reconciling accounts. Miller's Breads has only an Accounting Manager, Susan Rockwell, and no Accounting Stafr since it is a small operation. Susan has been with the company for 15 years. She is very knowledgeable and handles all the accounting tasks related to the Niceville facility. Since the expansion, she has had to work quite a bit of unpaid overtime to keep up with the increased volume of transactions. Brenda Thompson is the Controller, located at Fields Bakery in Atlanta. Brenda is very involved in the supervision and review of Fields' accounting department. She reviews Tonya's work and also performs secondary reviews on the accounting staffs' work as well. However, since Susan is so efficient and independent, Brenda only visits Miller's accounting department twice per year to check in. Accounting Systems Fields Bakery uses Intacct Accounting General Ledger (GL) software which is a web-based hosted application. Miller's Breads uses QuickBooks GL which is also a web-based hosted application. Only the accountants at each respective location have access to the GL. That is, the accountants at Fields Bakery can only access Intacct and the accountants at Miller's Breads can only access Quickbooks. Maintaining two separate GL systems limits Brenda and Tonya's ability to review Miller's Breads' accounting records and it also sometimes causes confusion when upper management reviews reports from Miller's Breads. Accounts Payable Process-Miller's Breads Miller's Breads has one bank account with a local bank, Niceville Bank and Trust (NB&T). NB&T does not have an online banking platform, only traditional branch banking. Most of Miller's vendor payments are processed via check. Checks are typically signed by Miller's President, Dan Steel. However if Dan is out of the office, Susan also has the authority to sign checks. Susan and Dan are the only signatories listed on the bank account. Susan usually prepares an Accounts Payable account reconciliation on a quarterly basis. Other Information The company is planning to go public in 2019, so it's very important to the CEO, Mark Johnson, that the company improve its consolidated margins. He expects both facilities to operate in an efficient and consistent manner. He would like to simplify the process of meeting the control environment requirements under the Sarbanes-Oxley Act since this can be a costly undertaking. Student Requirements: Using the ROMM Template (Excel document) provided, prepare a risk analysis addressing "what could go wrong" for the Miller's Bread subsidiary described in the case. The analysis should identify the related assertions associated with cach risk (se Table 6-4 on page 192 of the textbook for a listing of assertions). Propose at least three "key" internal controls related to your business cycle Develop a control testing strategy to monitor the proposed controls. Be very specific in describing the audit procedures that will be used . Identify fraud risks and discuss those risks as they relate to the three factors of the frod triangle (Chapter 4, see page 112) Propose at least two entity level controls that will strengthen the company's internal control environment Deliver a presentation to the class to discuss your key findings from the activities listed above Grading Rubric: This assignment is worth 100 total points. Delivery of Presentation: 40 points Aesthetics and organization: Presentation media should clearly and effectively exhibit the team's work. You have creative control as to selecting your presentation media (excel, power point, etc.). Presentation materials should exhibit professional stylings (i.e., look like a presentation that you would expect to see in a professional workplace) and should be free of grammatical and spelling errors. Professionalism and poise: Presenters should share approximately equal time presenting the material, make frequent eye contact (not reading straight from notes/slides), and engage the class. Your presentation should last approximately 15-20 minutes. Technical Merit of Materials: 60 points Complete set of deliverables: All required elements of the assignment are addressed thoroughly (see bullets from "Student Requirements" section above.) Quality of deliverables; Presentation materials should reflect content that is thoughtful and thoroughly researched. It should be evident that your suggestions apply specifically to this case. You may use your textbook and additionally research on the internet. revenue process, accounting for prenumbered shipping documents provides reasonable assurance that all revenue is recorded (completeness) Similarly, reconciliation of the accounts receivable subledger to the general ledger accounts receivable account provides a control to help ensure that the occurrence assertion is met. Later chapters show relevant control activities in detail for each business process. TABLE 6-4 Assertions about Classes of Transactions and Events and Related Control Procedures Assertion Control Activities Occurrence Segregation of duties. Prenumbered documents that are accounted for Daily or monthly reconciliation of subsidiary records with independent review Prenumbered documents that are accounted for Segregation of duties. Daily or monthly reconciliation of subsidiary records with indepdent review Completeness Accuracy Internal verification of amounts and calculations. Monthly reconciliation of subsidiary records by an independent person General and specific authorization of transactions at important control points Procedures for prompt recording of transactions Internal review and verification. Chart of accounts. Internal review and verification Authorization Cutoff Classification perience? And by the way, welcome back! revenue process, accounting for prenumbered shipping documents provides reasonable assurance that all revenue is recorded (completeness). Similarly, reconciliation of the accounts receivable subledger to the general ledger accounts receivable account provides a control to help ensure that the occurrence assertion is met. Later chapters show relevant control activities in detail for each business process. TABLE 6-4 Assertions about Classes of Transactions and Events and Related Control Procedures Assertion Control Activities Occurrence Segregation of duties. Prenumbered documents that are accounted for Daily or monthly reconciliation of subsidiary records with independent review Completeness Prenumbered documents that are accounted for Segregation of duties Daily or monthly reconciliation of subsidiary records with indepdent review Internal verification of amounts and calculations Monthly reconciliation of subsidiary records by an independent person General and specific authorization of transactions at important control points Procedures for prompt recording of transactions Internal review and verification. Chart of accounts. Internal review and verification Accuracy Authorization Cutoff Classification perience? And by the way, welcome back! Search S AE Be careful-files from the Internet can conlain vinuses Unless you need to edit, s saler to say in Protected Vew Enable Editing 11 D Internal Control Audit Plan Purpose: The purpose of this worksheet is to present the nisks of matenal misstatement related to For each nsk we will (1) identity the relevant assertion, (2) identity whether the identitied isk is also a traud nsk, and 3) select the most relevant control that adaresses the risk Control Activity tfrom tab 2) that Addresses Risk of Material Misstatement Fraud Risk? Account Balance Business Cycle Identification of Risk of Material Misstatement CWhat Could Go Wrong) Relevant Assertion Description of fraud Risk Yes No 2 Business Cycle Controls 1 Risks of Misstatement eady ROMM Template mlata