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    Medco Hospital Buyers Group (MHBG)

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    Medco Hospital Buyers Group (MHBG) processes a significant number
    of intercompany transactions each month, mainly transferring cash between business
    units to meet the needs of operating cash flows.None of MHBG's intercompany
    transactions are material on an individual basis. The intercompany transactions only
    affect balance sheet accounts.

    Company policy calls for intercompany accounts to be reconciled each month
    and for the balances between business units to be confirmed; however, the policy is
    not followed. The reconciliations are not performed regularly, and when they are performed,
    not in a timely manner.

    Management reviews the financial reports of the various business units and follows
    up on any large amounts in the intercompany accounts. Management also
    reviews the operating expenses of each of the business units each month, using variances
    as an indicator of reasonableness. Management consistently investigates any
    large intercompany account balances and unusual or large variances that are identified
    in this monthly review. (Adapted from AS 2, D1, Scenario A)

    Do you believe the lack of monthly intercompany account reconciliation and
    confirmation at MHBG is an ICFR deficiency? If you think it is, is it a significant deficiency
    or a material weakness, and why?

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    https://brainmass.com/business/cash-management/medco-hospital-buyers-group-mhbg-449591

    Solution Preview

    The lack of monthly account reconciliation and confirmation at the company is definitely an ICFR deficiency, and has created an ineffective control environment, leading to a high risk area. It is also a significant weakness due to the circumstances. None of the intercompany transactions are material on an individual basis, which ...

    Solution Summary

    Medco Hospital Buyers Group (MHBG) processes a significant number
    of intercompany transactions each month, mainly transferring cash between business
    units to meet the needs of operating cash flows.None of MHBG's intercompany
    transactions are material on an individual basis. The intercompany transactions only
    affect balance sheet accounts.

    Company policy calls for intercompany accounts to be reconciled each month
    and for the balances between business units to be confirmed; however, the policy is
    not followed. The reconciliations are not performed regularly, and when they are performed,
    not in a timely manner.

    Management reviews the financial reports of the various business units and follows
    up on any large amounts in the intercompany accounts. Management also
    reviews the operating expenses of each of the business units each month, using variances
    as an indicator of reasonableness. Management consistently investigates any
    large intercompany account balances and unusual or large variances that are identified
    in this monthly review. (Adapted from AS 2, D1, Scenario A)

    Do you believe the lack of monthly intercompany account reconciliation and
    confirmation at MHBG is an ICFR deficiency? If you think it is, is it a significant deficiency
    or a material weakness, and why?

    $2.19