Internal Control Risks Identified in Apollo Shoes
Assessing control risk is the process of evaluating the design and operating effectiveness of a company’s internal controls as to how it prevents or detects material misstatements in the financial statement assertions of management (Hayes, Dassen, Schilder, & Wallage, 2005). The conclusion reached as a result of assessing control risk is referred to as the assessed level of control risk. When assessing controls the auditor looks for weaknesses in a company’s internal controls for two reasons: to determine the nature and extent of the substantive tests the auditor will perform and to formulate constructive suggestions for improvements (Hayes, Dassen, Schilder, & Wallage, 2005). At the beginning of our audit assessment of Apollo Shoes’ internal control, the auditors filled out an internal control questionnaire based on information provided by the internal audit department, on the process of sales transactions. Unfortunately, information was not forthcoming regarding the type of sales transactions processed by Apollo Shoes and whether the same control procedures were applied to all sales transactions. Apollo Shoes had several internal control risks that were identified when the auditors were assessing control risk for the revenue and collection cycle. In the Apollo’s revenue and collection cycle, there were several control risks identified. Apollo Shoes only had an abbreviated accounting and control manual, which had not been kept up to date. Management and employees described accounting and control procedures informally under the heading of several transaction cycles. The auditors found sales transactions were not identified correctly and the types of processes were not distinguished so they could be processed correctly. Transactions in the sales and collection cycle should be classified into 5 categories: sales (cash and sales on account), cash receipts, sales return and allowance, write-off of...
References: Arens, A. A., Elder, R. J., & Beasley, M. S. (2012). Auditing and assurance services: An integrated approach (14th ed.). New York, NY: Pearson/Prentice Hall.
Hayes, R., Dassen, R., Schilder, A., & Wallage, P. (2005). Principles of auditing: An introduction to international standards on auditing (2nd ed.). New York, NY: Pearson.
Louwers, T. J., & Reynolds, J. K. (2002). Apollo Shoes casebook. New York, NY: McGraw-Hill.
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