Management Control

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Case 2

Case 2 is divided into two independent parts. You have to complete both parts.   Part 1: Case “Spice is right” (Hall, Chapter 4, Internal control case) (max 1-2 pages) Only point c (COSO), not a, b, and d. Part 2: Case “Vouch and Trace” (max 2-3 pages)

Vouch and Trace You are a new accounting graduate and this is your first week on the job at the Los Angeles office of a CPA firm. You are still adapting to Los Angeles and to your new job in this fast-paced and exciting environment. Here you are, plucked from a small city located among farmland in the Midwest, adjusting to the big-city lifestyle. You earn more than you ever imagined and you live in an overpriced, tiny apartment. Last night, you couldn’t fall asleep because of the …show more content…

shipping point. Although CBC’s policy and procedures manual states that the accounts receivable department is to prepare the invoice only after receiving both the sales order and the shipping document, there is no control in place to ensure that employees follow this procedure to prevent someone from preparing an invoice prior to receiving the shipping document. After preparing the invoice, the receivables department forwards a copy to the accounting department, where the invoice is posted to the sales journal. Sales orders are filed in the sales office, shipping documents are filed in the warehouse, and invoices are filed in the accounting department.’’ Ms. Rogers waits for us to finish taking notes before she continues: ‘‘You are to design an audit procedure that will detect revenue misstatements by testing the following assertions: occurrence, accuracy, and cutoff (for the explanation see the attached spreadsheet). For this training session, you need to select a sample of ten transactions from one of the following: (1) Sales Journal, (2) Sales Orders (filed in the sales department), (3) Shipping Documents (filed in the warehouse), or (4) Invoices (filed in the accounting department). Bear in mind that, for a real audit, you will be using statistical and nonstatistical sampling techniques to determine the correct sample size. That topic is out of scope for this training session. We’ll be covering statistical sampling and the related software program that our

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