What are the business objectives and what gaps are in their internal control?

– What are the business objectives – what gaps are in their internal control? – How each can be improved: control environment, risk assessment, information system, control activities, monitoring activities?Please ask questions!!!!!!!!I have already completed milestone one. Please read that first and then read the guidelines and grading for the other paper.I am giving considerable time for this paper as because my first paper I didn’t do very well on. So I ask please ask questions. If you need the textbook let me know.Thank you very much!Milestone 2:Your organization has decided to move forward with the audit of EarthWear Clothiers. As lead auditor, you will select one of EarthWear Clothiers’
business objectives and create an audit plan of their financial statements. The business objectives are:
? Expand further into the global market by launching internet sites into South American countries ? Increase customer base by introducing a new extreme sports product line to attract younger consumers
? Reduce pricing to be more competitive in the marketplace by seeking out additional vendor relationships to lower costs of goods sold ? Implement an employee stock purchase plan to increase productivity and employee morale ? Reduce delivery and distribution time of products and services by adding additional warehouse locationsMilestone 3:The items below were found while reviewing internal control during your evaluation. Consider whether the item is a significant deficiency or a material
weakness based on the other facts presented in the case and the materiality limits set in Milestone Two:
? There were several instances of transactions that were not properly recorded in subsidiary ledgers; transactions were not material, either individually or
in aggregate.
? There are a significant number of intercompany transactions monthly. The transactions are related to transfers of inventory between warehouses and
the allocation of marketing costs between the business units. The intercompany transactions are frequently material. There is a formal management
policy that requires monthly reconciliation of the intercompany accounts; however, there is no process to ensure that the procedures are performed
consistently. The result is a lack of timely reconciliations, and differences in intercompany accounts that are frequent and significant.
? Accounts receivable subsidiary ledgers are not reconciled to the general ledger account in a timely and accurate manner. There is a formal policy;
however, there is no formal process or procedure that is followed to complete this task. The differences between the subsidiaries and ledger accounts
required an audit adjustment of $376,000. ? There was a lack of adequate cut-off procedures to ensure the timely recording of certain period-end accruals. This resulted in an audit adjustment of
$3,578,000.
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ACC 645 Milestone Three Guidelines and Rubric
Overview: For the final project, you will work through components of a case study in which you will assume the role of a lead auditor at Willis & Adams. Your
firm has been approached by EarthWear Clothiers to perform an audit. In your role as lead auditor, you will perform management duties. You will evaluate
internal and external factors to determine client engagement, develop an audit plan, determine recommendations for improving internal controls, and
communicate the audit opinion. For this milestone, you will create the report on internal control.
Prompt: For this milestone, you will evaluate various components of EarthWear Clothiers to determine any gaps in internal controls, and you will discuss
strategies to improve them. Evaluate the following components within EarthWear Clothiers for gaps in internal controls and explain how each can be improved:
control environment, risk assessment, information system, control activities, monitoring activities.
The items below were found while reviewing internal control during your evaluation. Consider whether the item is a significant deficiency or a material
weakness based on the other facts presented in the case and the materiality limits set in Milestone Two:
?
?
?
?
There were several instances of transactions that were not properly recorded in subsidiary ledgers; transactions were not material, either individually or
in aggregate.
There are a significant number of intercompany transactions monthly. The transactions are related to transfers of inventory between warehouses and
the allocation of marketing costs between the business units. The intercompany transactions are frequently material. There is a formal management
policy that requires monthly reconciliation of the intercompany accounts; however, there is no process to ensure that the procedures are performed
consistently. The result is a lack of timely reconciliations, and differences in intercompany accounts that are frequent and significant.
Accounts receivable subsidiary ledgers are not reconciled to the general ledger account in a timely and accurate manner. There is a formal policy;
however, there is no formal process or procedure that is followed to complete this task. The differences between the subsidiaries and ledger accounts
required an audit adjustment of $376,000.
There was a lack of adequate cut-off procedures to ensure the timely recording of certain period-end accruals. This resulted in an audit adjustment of
$3,578,000.
Specifically, the following critical elements must be addressed:
III.
Internal Control: You will evaluate various components of the organization and determine any gaps in internal controls, and you will discuss strategies to
improve them. Evaluate the following components within an organization for gaps in internal controls, and explain how each can be improved:
A. Control environment
B. Risk assessment
C. Information system
D. Control activities
E. Monitoring activities
1
Rubric
Guidelines for Submission: Your report on internal control must be 2 to 3 pages in length (plus a cover page and references), with double spacing, 12-point
Times New Roman font, and one-inch margins. You should use current APA style guidelines for your citations and reference list.
Critical Elements
Internal Control:
Control
Environment
Proficient (100%)
Evaluates the control
environment within an
organization for gaps in
internal controls and explains
how they can be improved
Internal Control:
Risk Assessment
Evaluates the risk assessment
within an organization for
gaps in internal controls and
explains how they can be
improved
Internal Control:
Information System
Evaluates the information
system within an organization
for gaps in internal controls
and explains how they can be
improved
Internal Control:
Control Activities
Evaluates the control
activities within an
organization for gaps in
internal controls and explains
how they can be improved
Internal Control:
Monitoring
Activities
Evaluates the monitoring
activities within an
organization for gaps in
internal controls and explains
how they can be improved
Needs Improvement (70%)
Evaluates the control
environment within an
organization for gaps in internal
controls and explains how they
can be improved, but
explanation is cursory or
contains inaccuracies
Evaluates the risk assessment
within an organization for gaps
in internal controls and explains
how they can be improved, but
explanation is cursory or
contains inaccuracies
Evaluates the information
system within an organization
for gaps in internal controls and
explains how they can be
improved, but explanation is
cursory or contains inaccuracies
Evaluates the control activities
within an organization for gaps
in internal controls and explains
how they can be improved, but
explanation is cursory or
contains inaccuracies
Evaluates the monitoring
activities within an organization
for gaps in internal controls and
explains how they can be
improved, but explanation is
cursory or contains inaccuracies
2
Not Evident (0%)
Does not evaluate the
control environment within
an organization for gaps in
internal controls
Value
18
Does not evaluate the risk
assessment within an
organization for gaps in
internal controls
18
Does not evaluate the
information system within
an organization for gaps in
internal controls
18
Does not evaluate the
control activities within an
organization for gaps in
internal controls
18
Does not evaluate the
monitoring activities within
an organization for gaps in
internal controls
18
Articulation of
Response
Submission has no major
errors related to citations,
grammar, spelling, syntax, or
organization
Submission has major errors
related to citations, grammar,
spelling, syntax, or organization
that negatively impact
readability and articulation of
main ideas
Submission has critical errors
related to citations,
grammar, spelling, syntax, or
organization that prevent
understanding of ideas
Total
3
10
100%
ACC 645 Milestone Two Guidelines and Rubric
Overview: For the final project, you will work through components of a case study in which you will assume the role of a lead auditor at Willis & Adams. Your
firm has been approached by EarthWear Clothiers to perform an audit. In your role as lead auditor, you will perform management duties. You will evaluate
internal and external factors to determine client engagement, develop an audit plan, determine recommendations for improving internal controls, and
communicate the audit opinion. For this milestone, you will develop the audit plan.
Prompt: Your organization has decided to move forward with the audit of EarthWear Clothiers. As lead auditor, you will select one of EarthWear Clothiers’
business objectives and create an audit plan of their financial statements. The business objectives are:
?
?
?
?
?
Expand further into the global market by launching internet sites into South American countries
Increase customer base by introducing a new extreme sports product line to attract younger consumers
Reduce pricing to be more competitive in the marketplace by seeking out additional vendor relationships to lower costs of goods sold
Implement an employee stock purchase plan to increase productivity and employee morale
Reduce delivery and distribution time of products and services by adding additional warehouse locations
You will use the information from your preliminary review and auditing standards to support your plan. Using your selected business objective, you will create an
audit plan of the organization’s financial statements that addresses the following: business risks, management assertions, audit risk, internal controls, and the
effect on audit procedures. You will support your plan with the appropriate auditing standards. You will also determine materiality by conducting a preliminary
risk assessment, and you will explain which factors were used in making this determination. You can obtain the ICFR and materiality guidelines on the Willis &
Adams website. (Clicking the link initiates an automatic download of a ZIP file. You will need a utility to unzip the archive before you can use it as intended.)
Specifically, the following critical elements must be addressed:
II.
Planning the Audit: You will select one of the organization’s business objectives and create an audit plan of the organization’s financial statements. Use
the information from your preliminary review and auditing standards to support your plan.
A. Using your selected business objective, create an audit plan of the organization’s financial statements that addresses the following, and support
each with the appropriate auditing standards:
1. Business risks
2. Management assertions
3. Audit risk
4. Internal controls
5. Effect on audit procedures
B. Determine materiality by conducting a preliminary risk assessment, and explain which factors were used in making this determination.
1
Rubric
Guidelines for Submission: Your audit plan must be 2 to 3 pages in length (plus a cover page and references), with double spacing, 12-point Times New Roman
font, and one-inch margins. You should use current APA style guidelines for your citations and reference list.
Critical Elements
Planning the Audit:
Business Risks
Proficient (100%)
Creates an audit plan of the
organization’s financial
statements that addresses
business risks, and supports it
with the appropriate auditing
standards
Planning the Audit:
Management
Assertions
Creates an audit plan of the
organization’s financial
statements that addresses
management assertions, and
supports it with the
appropriate auditing
standards
Planning the Audit:
Audit Risk
Creates an audit plan of the
organization’s financial
statements that addresses
audit risk, and supports it
with the appropriate auditing
standards
Planning the Audit:
Internal Controls
Creates an audit plan of the
organization’s financial
statements that addresses
internal controls, and
supports it with the
appropriate auditing
standards
Needs Improvement (70%)
Creates an audit plan of the
organization’s financial
statements that addresses
business risks and supports it
with auditing standards, but
the auditing standards are
inappropriate or irrelevant
Creates an audit plan of the
organization’s financial
statements that addresses
management assertions and
supports it with auditing
standards, but the auditing
standards are inappropriate
or irrelevant
Creates an audit plan of the
organization’s financial
statements that addresses
audit risk and supports it with
auditing standards, but the
auditing standards are
inappropriate or irrelevant
Creates an audit plan of the
organization’s financial
statements that addresses
internal controls and supports
it with auditing standards, but
the auditing standards are
inappropriate or irrelevant
2
Not Evident (0%)
Does not create an audit plan
of the organization’s financial
statements that addresses
business risks
Value
15
Does not create an audit plan
of the organization’s financial
statements that addresses
management assertions
15
Does not create an audit plan
of the organization’s financial
statements that addresses
audit risk
15
Does not create an audit plan
of the organization’s financial
statements that addresses
internal controls
15
Planning the Audit:
Audit Procedures
Creates an audit plan of the
organization’s financial
statements that addresses the
effect on audit procedures,
and supports it with the
appropriate auditing
standards
Planning the Audit:
Materiality
Determines materiality by
conducting a preliminary risk
assessment and explains
which factors were used in
making this determination
Articulation of
Response
Submission has no major
errors related to citations,
grammar, spelling, syntax, or
organization
Creates an audit plan of the
organization’s financial
statements that addresses
the effect on audit
procedures and supports it
with auditing standards, but
the auditing standards are
inappropriate or irrelevant
Determines materiality by
conducting a preliminary risk
assessment and explains
which factors were used in
making this determination,
but explanation is cursory or
contains inaccuracies
Submission has major errors
related to citations, grammar,
spelling, syntax, or
organization that negatively
impact readability and
articulation of main ideas
Does not create an audit plan
of the organization’s financial
statements that addresses the
effect on audit procedures
15
Does not determine
materiality by conducting a
preliminary risk assessment
15
Submission has critical errors
related to citations, grammar,
spelling, syntax, or
organization that prevent
understanding of ideas
10
Total
3
100%
Running Head: CLIENT ENGAGEMENT
Client Engagement
1
2
CLIENT ENGAGEMENT
Client Engagement
I.
II.
Organization’s corporate structure and annual report
Information related to the external auditing firm, and summary of findings:
III.
Independence
IV.
Knowledge of client industry
V.
VI.
VII.
Staffing Capabilities
Internal and external factors determining client engagement
Recommendations for improving the internal controls and communicating the audit
opinion
3
CLIENT ENGAGEMENT
Client Engagement
Organization’s Corporate Structure and Annual Report
Earth wear Clothiers is a firm that deals in making clothes for sports which are outdoor.
Its products are mostly sold through the mail order. The corporate structure of the company of
the organization is properly organized into departments and working staff. Some of the common
departments included in the Earth wear company are Accounting, Human Resource Department
and Marketing Departments with lines of authority from the CEO who is in charge of all the
departments under him and the whole staff (Bell, 2012). From the annual report of Earth Wear
Company, the company has tried to increase the rate of its sales through expanding on its market
share and increasing the number of its customers by providing goods which are of good quality.
The organization also has plans of increasing its sales through customers via targeted personal
emails and advertising and posting its products on their web.
The company also has plans for expanding its operations. From the report, the company
has mailed approximately 160 million issues around the world. Earth wear Clothiers view each
of the mailed issues as an opportunity to interact with its customers. This also contributes to the
increase in sales and revenues of the company. From the findings of the annual reports of the
company, Willis and Adams should accept Earth wear Clothiers firm as their new client since
they have available data that can be worked with (Walo, 2015).
Information related to the external auditing firm, and summary of findings:
Independence
4
CLIENT ENGAGEMENT
Willis and Adams is an external audit firm that works with its clients in performing
auditing operations. Independence of the company is a case whereby the company can access the
financial documents or any documents needed to execute the duties of the auditing company.
The International Accounting Standards and Auditing Standards have given the auditors and the
auditing firm to execute their duties freely and with no influence on the client. The external
auditing firm, which is Willis and Adams is then required to make an opinion based on the
findings during the auditing process. The opinion made by the auditing firm should be
independent without internal or external influences (Hayes, 2012).
Knowledge of Client Industry
IAS 310 of the auditing standards require the auditing firm to know the client that they
are auditing. Willis and Adams auditing firm will accept Earth wear Clothiers as a new firm as it
has full knowledge of the firm through conducting site visitation with the client. The auditing
firm can also enhance or gain the knowledge of its client through the minutes of the company,
and other legal documents of Earth wear Clothier. They can obtain information about the client
firm through the lawyers and surveyors of the company and also through the employees of the
firm. For the external auditing firm to work with and produce quality results for the client, it is
important for the auditing firm to have substantial knowledge and information relating to the
client firm. The firm should, therefore, accept the new client as it can gain information about the
company and work with it (Johnstone, 2014).
Staffing Capabilities
Willis and Adams have staffing capabilities to operate and work within auditing Earth
wear Clothier firm. The staff has the technical skills that are needed in conducting the auditing
5
CLIENT ENGAGEMENT
process. The staff deployed by Willis and Adams has highly qualified accountants with the
technical skills and capabilities of carrying out auditing tasks with their client. The staff
deployed to conduct auditing duties for the company also have high levels of integrity and
uphold work values of the organization.
Internal and External Factors Determining Client Engagement
Among the internal factors that determine the client engagement include the employee
relationships and their participation with the auditing firm, the opportunities for growth by the
firm also is a factor that determines the client engagement. From the audit reports, Earth wear
Clothiers has growth and expansion opportunities and therefore Willis and Adams should accept
the company as a new client (Walo, 2015).
Among the external factors determining client engagement include, other social
responsibilities and duties, competing for job and opportunities for new careers may also
determine client engagement by the auditing firm. Social obligations can lead to poor
performance due to absenteeism by the employees. The differences in career salaries may also
determine client engagement as an external factor (Hayes, 2012).
It will be essential for Willis and Adams to accept the new client which is Earth wear Clothiers
as the employees and other staff of the company have good work relations which is an important
element of engaging a client. From the information obtained by the annual reports, the new client
should be accepted by the auditing firm (Bell, 2012).
Recommendations for improving the internal controls and communicating the audit
opinion
6
CLIENT ENGAGEMENT
The recommendations to improve the internal control system for the client include: to
segregate and divide accounting tasks, restriction in access to financial information, increased
staff supervision and giving job vacations to employees. The opinion of Willis and Adams can
indicate an unqualified opinion, disclaimer opinion or adverse opinion depending on the outcome
of the auditing process (Johnstone, 2014).
7
CLIENT ENGAGEMENT
References
Bell, T. B., Bedard, J. C., Johnstone, K. M., & Smith, E. F. (2012). Kristin: A computerized
decision aid for client acceptance and continuance risk assessments. Auditing: A Journal
of Practice & Theory, 21(2), 97-113.
Johnstone, K. M., & Bedard, J. C. (2013). Risk management in client acceptance decisions. The
Accounting Review, 78(4), 1003-1025.
Hayes, R., Wallage, P., & Gortemaker, H. (2014). Principles of auditing: an introduction to
International standards on auditing. Pearson Higher Ed.
Ayers, S., & Kaplan, S. E. (2013). Potential differences between engagement and risk review
partners and their effect on client acceptance judgments. Accounting Horizons, 12(2),
139.
Walo, J. C. (2015). The effects of client characteristics on audit scope. Auditing, 14(1), 115.
Johnstone, K. M., & Bedard, J. C. (2014). Engagement planning, bid pricing, and client response
in the market for initial attest engagements. The Accounting Review, 76(2), 199-220.

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