W'll'll'lllr EU I 5' MGA D20 Lecture 5 Discussion Question Question 1 You are an auditor employed by Nicholas & Williams Chartered Professional Accountants. One day when you were sitting in your office, a partner in the firm asked to see you to discuss a special assignment he wanted you to conduct for Smart Controls, a large successful manufacturer of electronic components used for smart phones. While Smart Controls is not a financial statement audit client, they have hired your firm over the years to perform various consulting engagements. This particular engagement consists of a review of the company's internal controls over the purchasing, storage, and issuance of special raw materials inventory which consists primarily of high-cost electronic components. The partner went on to tell you: \"Smart Controls has been experiencing some problems in the factory lately and the Board of Directors has asked us to verify whether their current procedures are adequate. They have had some pretty significant write-offs when some expensive electronic components have gone missing. The Board members are concerned about this situation and have asked us to examine the supply procedures and identify possible causes of the problems, specifically for their special raw materials inventory. 'lhey mentioned their external auditor had never expressed any qualications on the company's financial statements or mentioned any deficiencies in their letter to management. However, in light of the missing materials, l don't believe that there aren't any. i would like you to identity the deficiencies and provide improvements for each. lhave told the Controller that you will be there later today to meet him and get more information regarding the procedures in place. \" You have obtained a copy of the inventory policies and procedures from him to assist in your assignment (Exhibit 1). Later that day, you meet with the Controller to discuss the controls over the special raw materials inventory (Exhibit 2). Required Provide a memo that addresses the issues regarding the internal audit department. Provide a second memo that summarizes the internal control deficiencies, the recommended improvements for each, and a conclusion about whether or not they constitute significant deficiencies. Make sure to use the template posted as a separate file (PEG Form 575 Adapted) on Quercus (Canvas). (Julie A. McDonald, Canadian Assurance Cases, Auditing in the Real World, Adapted)