Introduction This case gives students an opportunity to (1) understand the process of evaluating identified control deficiencies; (2) understand the annual disclosure requirements for managements report on internal control over financial reporting (ICFR); and (3) determine the effect of identified control deficiencies on other controls. Students are required to read the case and address the seven questions listed on the last page. Background Mason Inc. (Mason or the Company) is a U.S. public company that files quarterly and annual reports with the Securities and Exchange Commission (SEC). Mason is a leading retail chain operating more than 100 department stores across the continental United States. Mason department stores offer customers a variety of nationally advertised products, including clothing, shoes, jewelry, and other accessories. The Companys supply chain of products is managed through a single warehouse and distribution facility located in Kansas City, Missouri. Mason has a centralized accounting and finance structure at its corporate headquarters, where all processes and controls related to all substantive account balances occur, including controls related to accounts payable and the Vendor Master File. Mason recognizes revenues from retail sales at the point of sale to its customers. Discounts provided to customers by the Company at the point of sale, including discounts provided in connection with loyalty cards, are recognized as a reduction in sales as the products are sold. Cost of goods sold for the Company primarily consist of inbound freight and costs relating to purchasing and receiving, inspection, depreciation, warehousing, internal transfer, and other costs of distribution. Facts Audit Issue On June 1, 2021, the Accounts Payable (AP) Manager received an e-mail inquiry about the process required for a vendor to change its bank account information. The e-mail was sent from John Smith at a domain address listed as Watch-Makers. Watch Makers is a manufacturer that supplies Mason -branded watches to Masons west region department stores. In addition, John Smith is the primary contact at Watch Makers with whom the Company typically interacts. The AP Manager responded to the e-mail request on June 15, 2021, with the procedures required of the vendor, which include completing a vendor bank account request form. On June 20, 2021, the AP Manager received a reply e-mail from John Smith at Watch-Makers with a completed vendor bank account request form, which included John Smiths signature, new bank account information, and other related information. Upon receiving the vendor bank account request form, the AP Manager completed a separately required Vendor Change Form for internal processing. The Vendor Change Form is completed for new vendors or changes to existing vendors information, including bank account information. The AP Manager sent the completed Vendor Change Form to Masons Assistant Controller, who reviewed and approved the request on June 24, 2021. The bank account information was updated within the Vendor Master File on June 26, 2021.

Question

Briefly explain the effects of this control deficiency on the companys financial statements. Specifically, how can accepting a fraudulent vendor change request and making payments to an incorrect bank account result in a misstatement in the Accounts Payable balance?