Using the information provided in Part Two of the Fancy Feline Furniture Case Study, complete the introductory section of the audit report

ACC 645: Audit Report Template Executive Summary In the first paragraph, describe the audit. Include the audit type (financial, operational, etc.) and any policies and procedures that were reviewed for compliance. Provide a brief description of the specific division, location, or process under audit. Audit Objectives State the overall audit objective. This may include financial accuracy, compliance with policies and procedures, efficiency, effectiveness, etc. Audit Scope State what was included in scope, including the time period covered by the audit. Also state what was specifically excluded from scope. Audit Approach Describe the audit methodology used in the audit. Examples include interviews, test work, audit sampling, and audit frameworks such as COSO and CobiT. Summary of Observations Include a brief summary of the audit observations here, ranked by importance. Each observation should be summarized in three sentences or fewer, with the details given in the body of the report. Details of Observations Include the details of each audit observation, in the same order that they were presented in the summary. ACC 645 Case Study: Fancy Feline Furniture, Part Two Your team has completed your review of FFF and is in the process of preparing the audit report. As a reminder from Part One, the audit scope includes the revenue cycle for the division, along with supporting staff/activities from headquarters, excluding online orders and custom orders, both of which will be subject of a future audit. The audit scope covers transactions occurring during fiscal years 2010-2012 (three years). One of the areas you reviewed and tested was the area of pricing management. The initial narrative describing this process was the following: Pricing Management There are two price lists: one is for ready-made product sales to retailers, and one is for readymade products on the online store. The price lists can be loaded into the system by anyone who is authorized to access the price list add/change transaction. The company policy states that only the manager of customer service and the manager of finance will be allowed this access. The policy also states that all changes must be approved by the CFO and the VP of Marketing and Sales. According to Sue Smith, manager of finance, price list changes are prepared in an Excel spreadsheet. The spreadsheet is printed, and the CFO and VP of Marketing and Sales both sign the printout to indicate their approval prior to changes being put into the system. The finance department maintains a file of the signed price sheets. Your initial risk assessment identified the following related to Pricing Management: Control objective: Customer pricing is accurate and supports company goals for profitability and growth. Risks: Pricing is set to a level that does not meet company goals for profitability and growth. Prices in the system do not match the approved pricing. Price discounts are granted to customers in a manner that does not meet company goals for profitability and growth. Control Activities: Authorization: All price lists and changes to price lists must be approved by the CFO and the VP of Marketing and Sales. Authorization: Salesperson enters customer-specific pricing discounts and terms on the new customer form, which must be approved by the CFO and the VP of Marketing and Sales. Information Systems: The manager of finance prepares price list changes in an Excel spreadsheet that summarizes the forecast impact of the price changes. The spreadsheet template file is maintained on a secure, shared drive. The spreadsheet was independently tested for accuracy at the time it was developed. Information Systems/Segregation of Duties: New customers can be set up by anyone who is authorized to access the customer add transaction. Company policy states that only the manager of finance and one other designated finance employee are allowed this access. Information Systems/Segregation of Duties: Price lists can be loaded into the system only by those authorized to access the price list add/change transaction. Per company policy, only the manager of customer service and the manager of finance are allowed this access. After the initial risk assessment, you performed additional review in this area and noted the following relating to the price list changes spreadsheet: The manager of finance initially developed this spreadsheet. It was tested thoroughly and is now stored on a shared drive on the company's local area network. Prior testing of IT General Controls has shown network security is adequate. A finance employee who reports to the manager of finance enters proposed price changes and forecast impact on volume into the spreadsheet. The employee downloads from the system the current pricing and volume information. This information is loaded into the spreadsheet using an automated spreadsheet function (vlookup). The spreadsheet automatically calculates the impact of the proposed price changes, by product and in total. The company has approximately 200 different products that are shown on this spreadsheet (so the spreadsheet has about 200 rows). The finance employee selects two random rows in the spreadsheet and manually calculates the price change impact to ensure the spreadsheet is accurate. The finance manager then reviews the spreadsheet by selecting two additional random rows and manually calculating the price change impact. She prints the spreadsheet, initials her approval, and forwards it to the VP of Marketing and Sales for approval. The VP states that she reviews the totals and pricing on select high-volume or strategic items, signs the printout, and forwards to the CFO. The CFO states that he reviews each item, identifies items with large impacts on total sales, asks questions if needed, and once satisfied signs the price sheet and returns to the manager of finance. The spreadsheet format is shown in the Excel file FFF_Price_List. Because it is only a snapshot of the file, formulas have not been entered for the sums, but assume that the file contains both sum formulas and vlookup formulas where noted. You identified control weaknesses in that the shared network drive, and therefore the spreadsheet template, is accessible to finance employees who are not involved in the pricing process. The template does not make use of software protection features, so the worksheet can be inadvertently or purposely changed by anyone with access to the drive. No one foots the spreadsheet totals. In addition, no one checks the initial download from the system for accuracy and completeness. You reviewed the entire population of two items (approved price lists) through a reperformance test by checking the accuracy of the download, and then running the information through a new spreadsheet you developed. Your test indicated that there were errors in the spreadsheet. Further review revealed: During the download process, the vlookup function resulted in five errors. The finance employee replaced the cells with errors with 0 values instead of investigating the source of the errors (part numbers had changed because of product modifications). The impact column shows $0 for each of these rows instead of a total of $297,587 that should be in this column for those rows. At some point in time someone added rows to the spreadsheet for new products. However, the sum function was not adjusted so the last five rows on the spreadsheet were not included in totals. The total of those last five rows is $876,143. At some point in time someone adjusted the formulas in two rows of the spreadsheet so that these formulas were inconsistent. As a result, the two rows showed a total of $85,998 in the approved price list, but should have showed a total of ($182,245) instead. REQUIRED: Using the templates provided: 1) Complete the introductory section of the audit report. 2) Complete the audit observation for the above problems with the price list changes spreadsheet. 3) Use the writing samples file and the website resources provided to check your work for common writing errors prior to submitting your work