Pace, CPA, is performing audit procedures for the December 31, Year 3 audit of Adeline Aircraft Financing Co. (AAF), an issuer in the business of financing private aircraft. You, a senior auditor from Pace, attended the Cash Receipts walkthrough, gathered walkthrough support (reference exhibits), and have been asked by your manager to perform certain procedures related to the assessment of the design and operating effectiveness of the internal controls in the walkthrough.

As part of the assessment of design effectiveness, you have been asked to identify any segregation of duties issues. Review the support found in the exhibits and document your assessment by clicking in the associated cell and selecting from the list provided.

A. We noted no issues related to segregation of duties

B. Custody of assets and recording of assets are not appropriately segregated.

C. Authorization of assets and recording of assets are not appropriately segregated

D. Custody of assets and authorization of assets are not appropriately segregated

E. Recording of assets and reconciliation are not appropriately segregated.

To assess the operating effectiveness of the internal controls, you observed and gathered support for one instance of each control in the walkthrough. This support serves as a test of one for each control in the test of control matrix. Review the gathered support found in the exhibits and complete your assessment by completing the testing matrix below.

• In the Control Occurrence (Y/N) column, select whether or not the control occurrence observed was operating effectively by selecting "Y" for Yes or "N" for No.

• In the Control Occurrence Details column, select the explanation for whether or not the control was operating effectively by clicking in the associated cells and selecting from the list provided. An explanation may be used once, more than once, or not at all.

• Assume that there is only one explanation for each control occurrence

Control	Transaction Descrip	Selection Source	Procedures Performed	Control Occurrence (Y/N)	Control Occurrence Details
Control #1 Application	Update access for posting cash to the receivable system is controlled by system security	Receivable User Access Report	Obtained receivable user access report in walk-through and reviewed users' access to record cash receipts. We selected one employee who should be granted access and one employee who should not be granted access to apply cash receipts. We obtained a screen print from the receivable system showing the access level of each of our selections.
Control #2 Daily	Resolution of variation between remittance and payment due	July Receivable system report	We observed the query and pull from the receivable system for customer payments due and the associated cash receipts for the month of July. Data was exported to an excel file. We compared remittance and payment due for variances and noted any unexplained or stale variances over $500.
Control #3 Application	Interface of receivable system with general ledger	7/8/Year 3	In order to validate the interface between receivable system and the general ledger we obtained screen prints from the receivable system to obtain evidence of cash receipt being applied to a customer account balance. In addition, we obtained the subsequent journal entry to general ledger to obtain evidence of the automated posting of cash receipts in the receivable system to the general ledger	Y	Satisfied control attribute without exception
Control #4 Monthly	Monthly Cash Reconciliation	General Ledger Account#0011-11222-012012-1010 July	We obtained monthly reconciliation for the related general ledger account balance and performed the following: 1) inspected reconciliation for evidence of timely preparation and review based on sign-offs 2)agreed balance per ledger to the General Ledger 3) agreed external source balance to bank statement or receivable subledger 4) noted any unusual reconciling items

Options for Control Occurrence Details column:

Satisfied control attribute without exception.

Reconciling items are not resolved in timely manner.

They are aged over 30 days.

Reconciliation review is not done in a timely manner.

Review exceeds 30 days from month end.

Reconciliation is not supported by external sources.

User access is not appropriate as authorized users cannot access restricted data.

User access is not appropriate as unauthorized users can access restricted data.

Journal entries do not support General Ledger posting.

Receivable system incorrectly captures cash receipts.

Variances exceed control threshold and were unexplained.

Variances were stale (> 30 days).

Variances were explained; however, explanation was unsupported.