for risk #2:

a. Was the engagement teams assessment of the evaluation of the design of each control appropriate (i.e., does the control identified by the team address the specific risk of material misstatement and associated assertion)

b. Was the engagement teams assessment of the risk associated with each control appropriate?

c. Was the teams interim planned procedures to test the operating effectiveness of each control appropriate considering the risk associated with the control?

d. Was the teams roll-forward planned procedures to test the operating effectiveness of each control appropriate considering the risk associated with the control

SIMONS Inc. Account Scoping and Risk Assessment Account Balance and Disclosure: Revenue Class of Transaction: Recording Sales Identification of risk of material misstatement Risk #2 Revenue is recorded for orders not shipped or fictitious sales. Relevant assertion Occurrence Significant risk? Yes Yes Risk of material misstatement because of fraud? Control activity that addresses the risk of misstatement Control #2: The "Orders Shipped & Invoiced Report" is reviewed by the warehouse director on a daily basis for unusual items and specifically for invoices recorded that don't have corresponding shipping documents; evidenced by the warehouse director's initials on the report and maintained by the director. Yes - The "Orders Shipped & Invoiced Report," which details orders that were shipped and invoiced for a given day. The report is automatically generated by the Warehouse SELLANDSHIP system Does the control rely on information used in the control (or IUC)? If yes, list relevant information Will we obtain audit evidence of the accuracy and completeness of information used in the control by testing controls? Because the control's operating effectiveness depends on the accuracy and completeness of the IPE, we will test the controls around accuracy and completeness. As the IPE is a system-generated report, refer to our testing of the company's IT general controls. In addition, we will test the controls around report logic, parameters, and the source data. Is the control automated? No. Relevant application system (if we are testing Warehouse SELLANDSHIP System, which is subject to IT controls and tested within the IT controls workpaper. information used in the control through tests of controls and/or the control is automated) Tests of controls: evaluation of design Based on the following factors, we concluded that the control is appropriately designed to address the stated risk of material misstatement: 1. The warehouse director has been with the company for over six years and has been acting in this current role for the last four. The warehouse director oversees operations at the warehouse and directly supervises the warehouse managers. The director is knowledgeable of the business and focuses reviews on activity that seems unusual given the customer and quantities purchased. The review is directed to the identification of unusual trends and thus appropriately addresses the related risk of material misstatement and assertion. 2. Control is performed daily. 3. Control identifies exceptions after they have occurred (i.e., it's a detective control), yet given the frequency of performance, it would identify errors promptly. 4. Although the control entails the review of daily revenue activity, it is done on a transaction-by-transaction basis, and as such it is sufficiently precise to mitigate the risk. 5. Control involves the judgment of the warehouse director since there is no specific threshold set. However, since all transactions are evaluated and SIMONS has a cyclical business, the report results are predictable. Risk Associated with the Control Higher Tests of controls: planned operating effectiveness testing The OE testing of this control will be apportioned through the entire year, thus no roll forward procedures are needed since some of our selections were made between 09/15 and 11/01. In addition, no issues were noted with those or any selections made. The procedures made on the selections are as follows: 1. Select 30 days out of the year. Make sure a few selections are made between 09/15 and 11/01. 2. For each day selected, obtain the "Orders Shipped & Invoiced Report" reviewed by the warehouse director. Inspect the report for evidence of review by the warehouse director by noting comments, pencil markings, or email correspondence of follow up inquiries. Inquire of the warehouse director as to what he did to review each report 3. Reperform the warehouse director's procedures by reviewing the report for any unusual transactions or invoices recorded that do not have corresponding shipping documents and investigate these transactions. 4. Determine whether there was timely evidence of review by the warehouse director (typically in the form of physical sign off by the warehouse director on the report and dated on the day following the report date)