Question Four (8 points) ABC Company is a major retailer of electrical fixtures and ceiling fans. The company opened a large store in a growing metropolitan area at the beginning of this year. The following facts surfaced during an internal audit of the store shortly after its first year of doing business: 1. The manager of the new store recorded a large year-end accounting adjustment-a de bit to Sales and a credit to Accounts Receivable. The journal entry explanation indicated that the entry was made to adjust the general ledger Accounts Receivable account to the Accounts Receivable subsidiary ledger. 2. The year-end gross margin percentage at the new store was significantly lower than the average margin percentage of the company's other stores. 3. The manager of the new store was stealing some payments the customers made on the ir accounts. That is why the general ledger was out of balance with the subsidiary ledger. The store manager made the large year-end adjusting entry to cover up the theft, which is why the store's gross margin was lower than the average of the other stores. The amount stolen from the accounts was $450,000. That was also the impact of the accounting adjustments described in paragraph one above. 4. The year-end adjustment was material to the store, but not to the company as a whole. ABC is a large company. The internal audit department, ABC's outside auditors and ABC's Risk Management department have determined that observations less than $2,000,000 are considered insignificant and that observations more than $10,000,000 are considered to be material. Based on the above information, please provide responses to the following questions: 1. COSO classifies objectives and controls into three categories. Which category (ies) are impacted by the above information? 2. What controls should have been in place that would have prevented this situation from occurring? 3. Assume that the controls you identified in part 2 were in place, but they were just not operating effectively. Also, assume these controls were classified as Key Controls. Accordingly, how would your observations in this audit be communicated (escalated)?