Integrated Case ApplicationPinnacle Manufacturing: Part IV (25 points)

(Objectives 12-1, 12-2) In Part I and Part II of the case, you performed preliminary analytical procedures and assessed acceptable audit risk and inherent risk for Pinnacle. In Part III, you considered fraud risks. The purpose of Part IV is to obtain an understanding of internal control and assess control risk for Pinnacle Manufacturing's acquisition and cash disbursement transactions. Your team has been assigned the responsibility of auditing the acquisition and payment cycle and one related balance sheet account, accounts payable. The general approach to be taken will be to reduce assessed control risk to a low level, if possible, for the two main types of transactions affecting accounts payable: acquisitions and cash disbursements. The following (Figure 12-12 and Figure 12-13)are furnished as background information:

(Figure 12-12)A summary of key information from the audit of the acquisition and payment cycle and accounts payable in the prior year, which was extracted from the previous audit firm's audit files.