The auditor should consider known internal control deficiencies as part of the process of planning the audit.

Required

a. The following is a list of internal control deficiencies that were found at a small manufacturing business. For each deficiency identify the fraud risk, and identify the extended audit procedures that should be performed.

b. Is the analysis of control deficiencies described below a normal part of every financial statement audit or is it only a requirement when fraud is suspected? Explain.

Internal Control Deficiency Suggested Audit Extension

1. The individual collecting cash also reconciles the bank account.

2. The person who approves cash disbursements has access to receiving reports.

3. There is no locked security or security cameras over inventory held in a warehouse. The warehouse manager assumes responsibility for the items.

4. Maintenance people use numerous small tools on the job. The company changed its policy from charging the maintenance personnel for the tools to expensing the tools.

5. Payroll is handled by one person, but is reviewed by the CEO when he signs the checks.

6. Expense reimbursements for the CEO and CFO are only reviewed by themselves for approval.