Auditing Cases 6th Edition by Mark Beasley,Frank Buckless,Steven Glover,Douglas Prawitt

Exercise 2

The audit partner on the St. James engagement, Betty Watergate, has asked you to review the narratives prepared by Joe as part of your audit planning procedures for the current year's December 31, 2015 financial statement audit. Betty wants you to prepare a memorandum for her that addresses these questions:
[a] What aspects of the current manual sales accounting system create risks that increase the likelihood of material misstatements in the financial statements Specifically identify each risk and how it might lead to a misstatement. For example, don't just put "Risk: Sales tickets are manually prepared by the cashier." Rather, you should state why this increases risks of material misstatements by adding "This increases the risk of material misstatements because it increases the risk of random mathematical errors by the cashier."
[b] What features, if any, of the proposed IT-based sales accounting system will help minimize the risks identified in question 2.a If a deficiency exists that is expected to persist under the new system, indicate that "no computer controls reduce this risk."
[c] How does the IT-based sales system create new risks for material misstatements
[d] What recommendations do you have related to plans for the actual conversion to this new system
Prepare a memorandum containing your responses to Betty's questions. You may find it helpful to combine your responses to questions 2.a and 2.b. For example, you might present your answers to questions 2.a and 2.b using the worksheet format on the next page (Note: You can download an electronic version of the worksheet at the publisher's website that supports this casebook www.pearsonhighered.com/beasley).