Consider the facts presented below. Using the observation and escalation process, determine the following for the noted observations. What COS objective categories are affected? Classify the observations as controls that are inadequately designed, ineffective operatine, or both Determine what you believe the impact and likelihood of the observation will be Assess whether the observations are insignificant, significant, or material and indicate what your frame of reference will be Based on your above answers, how and to whom would you communicate the observation ABC Company is a major wholesaler of electrical lighting fixtures and ceiling fans. The company opened a large store in a growing metropolitan area near the beginning of the company's fiscal year. The following facts surfaced during an internal audit of the store shortly after the end of the riscal year: The manager of the new store had booked a large year end adjustment -a debit to sales and a credit to accounts receivable. The journal entrv explanation indicated that the entry was made to adjust the general ledger accounts receivable account to the accounts receivable subsidiary ledger. The year end gross margin percentage at the new store was significantly lower than the average margin percentage of the company's other stores. The manager of the new store was stealing payments customers made on account. That is why the general ledger was out of balance with the subsidiary ledger. The store manager made the large year end adjusting entry to cover up the theft, which is why the store's gross margin was lower than the average of the other stores The year end adjustment was material to the store, but not the company as a whole

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