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This identifies internal control weaknesses & provides fixes

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Based on the following summary, I am to write a letter to Jerry Mays, owner of the Manhattan Company, explaining the weaknesses in internal control and your recommendation for improving the system.

As a new auditor for the CPA firm of Croix, Marais, and Kale, you have been assigned to review the internal controls over mail cash receipts of Manhattan Company. Your review reveals the following: Checks are promptly endorsed "For Deposit Only", but no list of the checks is prepared by the person opening the mail. The mail is opened either by the cashier or by the employee who maintains the accounts receivable records. Mail receipts are deposited in the bank weekly by the cashier.

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PROBLEM: The first problem is that the checks are endorsed as for deposit only, with no supporting information on any document because there is no list of checks. Even though the checks are endorsed as "for deposit only," they can still be tampered with, and the employee opening the checks could alter the checks and deposit the checks into their own bank account by stealing a check.

SOLUTION: The person opening the checks should prepare a list of customers that mailed in ...

Solution Summary

The solution shows the problems in the internal control system and recommends to Jerry Mays, owner of the Manhattan Company, the steps needed to correct the weaknesses.

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Internal Control and Auditing Standards

7-28.
Adherence to generally accepted auditing standards requires, among other things, a proper understanding of the existing internal control. The most common approaches to documenting the understanding of internal control include the use of a questionnaire, preparation of a written narrative, preparation of a flowchart, or a combination of these methods.

a. Discuss the advantages to CPAs of documenting internal control by using:
o (1) An internal control questionnaire.
o (2) A written narrative.
o (3) A flowchart.
b. If they are satisfied that no material weaknesses in internal control exist after completing their description of internal control, is it necessary for the CPAs to conduct tests of controls? Explain.

7-33.
Randall, Inc., is a private company that manufactures heavy machinery. The company has an active audit committee and board of directors. The audit committee consists of two outside directors and Howard Kress, the company chief financial officer. The audit committee meets quarterly to provide oversight of financial reporting, including reviewing new accounting policies and unusual transactions. Howard Kress personally reviews and approves any related party transactions. Internal audits of operating units are performed by the internal auditor, who reports directly to Laura Howe, the chief operating officer.

The company has a written code of conduct, and employees agree to adhere to the code when they are hired. The company also has a hotline for confidential reporting of unethical behavior that is staffed by the corporate controller. The audit committee reviews summaries of all incidents and investigations performed.

Identify the weaknesses in Randall's system of corporate governance and provide suggestions for improvement in the system.

9-29.
CPAs may decide to apply nonstatistical or statistical techniques to audit testing.
a. List and explain the advantages of applying statistical sampling techniques to audit testing.
b. List and discuss the decisions involving professional judgment that must be made by the CPAs in applying statistical sampling techniques to tests of controls.
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