Prepare a flowchart for the acquisition and the payment cycle for Johnson Machinery Company. 2. List the controls in existence for each of the six transaction-related audit objectives for acquisitions. 3. For each control in part 2, list one test of control procedure for verifying its effectiveness. 4. List the most important deficiencies in the acquisition and payment cycle. 5. Identify the most likely error or fraud that could result from each of the deficiencies listed in part 4. 6. Suggest a system alteration for JMC that would correct each of the deficiencies identified in part 4. Be sure to keep cost/benefit in mind. 7. Design an audit program to test internal control. The program should include, but not be limited to, tests of controls from part 3 and procedures to compensate for the deficiencies in part 4. 8. Prepare a separate Internal Control Report over Financial Reporting based upon your evaluation of the identified audit deficiencies.

TERM PROJECT 1 Analysis and Audit Plan . Detailed Instructions 1. 2. Form a group of four persons. Discuss how you will organize (assign responsibilities) to complete this project in a suitable format. Obtain a copy of a recent annual report of a publicly held company with stock actively traded on the New York, NASDAQ or other over-thecounter exchanges. Answer the following questions: a. b. c. d. e. f. g. 3. Obtain a copy of the Company's 10-K report for the same date as the annual report. Answer the following questions: a. b. 4. What is the company's industry? What are its primary products? What raw materials does the company use? How large is the company: sales assets employees Where is the company located? What other people/companies are closely associated with this company? Look at the annual report: What image does it intend to convey? What are the segments and functional contents of the report? How does the 10-K differ from the annual report? Supplement the answers to the questions under 2 as appropriate. Obtain outside information about the company and its industry. Answer the following questions: a. b. c. d. e. What are the key economic factors about the industry? Where is the company in its life cycle? What are the five or six most important factors for success in this business? How does this company stand with respect to these factors? Describe four or five key business risks related to the client's business and industry. f. g. h. 5. Analyze the company's financial strength: a. b. c. d. e. f. 6. Assess the financial strength of the company? How is the financial strength likely to change in the next year or so? What are its sources of capital and what is the value of the company's capital? How have capital markets responded to the company in the last year? What is the quality of earnings? How does the company compare with others in the industry? Prepare a detailed audit plan that addresses the following: a. b. c. d. e. f. g. 7. What notable accounting considerations are there for companies in this industry? What legal or regulatory matters are of concern? What social matters are of concern? What specific material types of transactions and transaction cycles are involved? What cycles will be tested? Describe when the testing will be performed. Describe the audit steps that will be involved? What are the high-risk areas? Describe detailed audit tests to address these areas. What are the low-risk areas? Describe detailed audit tests to address these areas. If management faced tremendous pressure regarding the entity's financial performance, what opportunities might exist for them to engage in fraudulent financial reporting? What is your assessment of the control risk? To what extent do you believe it will be appropriate to reduce assessed control risk? Describe how the audit effort will be allocated among geographical areas. What form of auditors' report do you expect will be issued; what does it mean? Indicate as an appendix to the report how the project team was organized and how it functioned on the project. TERM PROJECT 2 Internal Control and Audit Program Case You are provided with the following description of the accounting system and internal controls for materials purchases by the Johnson Machinery Company, a medium-sized firm that builds special machinery to order, that is a publicly held company.. Materials purchase requisitions are first approved by the plant foreman, who then sends them to the purchasing department. Purchasing department employees enter the purchase requisition information into the computer, which automatically generates a purchase order in sequential order. The system automatically generates a paper copy of the purchase order, which is sent by purchasing department employees to the vendor. The receiving department electronically accesses a copy of the purchase order, which is printed to serve as a receiving report. Delivered materials are immediately sent to the storeroom. The completed receiving report, which is a printed copy of the purchase order, is sent to the purchasing department. A copy of the receiving report is sent to the storeroom. Materials are issued to factory employees subsequent to the verbal request by one of the foremen. When the mailroom clerk receives vendors' invoices, he forwards them to the purchasing department employee who placed the order. The invoice is compared with the electronic copy of the purchase order for price and terms by the employee. The invoice quantity is compared with the receiving department's report. After checking footings, extensions, and discounts on the vendor invoice, the employee indicates approval for payment by initialing the invoice. The invoice is then forwarded to the accounting department (voucher section) where it is coded for account distribution, assigned a voucher number, and entered into the accounting system for recording in the voucher register. The system tracks invoices due by payment date due. The purchase order and receiving report are filed in the purchasing department. On payment dates, the system automatically generates a request for payment. The system automatically prepares checks and a transaction list for preparation of a cash disbursements journal, updates the accounts payable master file, and indicates the payment date for the voucher register. Prenumbered checks are sent to the cashier, who puts them through the checksigning machine. The checks are then sent to the voucher section that makes sure that the checks were correctly prepared. The checks are placed in envelopes and sent to the mailroom. The vouchers are subsequently filed in numerical order. At the end of each month, a computer listing of voucher and cash disbursement transactions, and an outstanding accounts payable list is prepared. Required: 1. Prepare a flowchart for the acquisition and the payment cycle for Johnson Machinery Company. 2. List the controls in existence for each of the six transaction-related audit objectives for acquisitions. 3. For each control in part 2, list one test of control procedure for verifying its effectiveness. 4. List the most important deficiencies in the acquisition and payment cycle. 5. Identify the most likely error or fraud that could result from each of the deficiencies listed in part 4. 6. Suggest a system alteration for JMC that would correct each of the deficiencies identified in part 4. Be sure to keep cost/benefit in mind. 7. Design an audit program to test internal control. The program should include, but not be limited to, tests of controls from part 3 and procedures to compensate for the deficiencies in part 4. 8. Prepare a separate Internal Control Report over Financial Reporting based upon your evaluation of the identified audit deficiencies