Week 7 Homework Questions 1: This Question Is Based On Tom's

Week 7 Homework Questions 1this Question Is Based On Toms Trailer Sal

This assignment is based on Tom's Trailer Sales case, which includes questions on IT duties segregation, controls, and audit tests. It requires analyzing how to assign IT roles in a small business, identifying additional controls, and evaluating audit procedures, all within the context of the company described. The case details Tom's small recreational trailer business, its current operations, and the recent efforts to implement an information system with the help of Carla Denton, an MIS consultant. You must develop a practical plan for segregating IT duties among minimal staff, describe additional controls for information systems, and analyze multiple-choice questions about audit procedures with explanations.

Paper For Above instruction

In small business environments, especially those like Tom’s Trailer Sales, implementing effective segregation of duties within information systems is both a challenge and a necessity. Given the limited staff and resources, the management must prioritize controls that maximize security and accuracy without overburdening the personnel. This paper explores how Tom can effectively allocate IT roles among his minimal staff, suggests additional controls for his information systems, and examines audit procedures relevant to his business context, providing practical insights grounded in IT governance principles.

Segregation of Duties at Tom’s Trailer Sales

Segregation of duties (SoD) is a fundamental element of internal control, designed to prevent fraud and error by dividing responsibilities among different individuals. In Tom’s Trailer Sales, the primary challenge stems from the small staff size, which limits the extent of potential separation. The nine IT roles listed—Chief Information Officer or IT Manager, Security Administrator, Systems Analyst, Programmer, Computer Operations, Librarian, Network Administrator, Data Input/Output Control, and Database Administrator—require thoughtful distribution to ensure adequate oversight.

Given Tom’s cadre, Carla’s outsourcing role becomes central. Carla could assume the role of a part-time IT manager or lead, overseeing the system setup, maintenance, and security policies. She could also serve as the Security Administrator and Network Administrator, ensuring proper system security and network integrity. The Bookkeeper, who is involved in financial data processing, should only have access to data input functions, with controls such as limited permissions and audit logs to prevent unauthorized modifications.

The sales staff and mechanics, due to their operational roles, should have restricted access—primarily data input and retrieval functions—without control over system configuration or sensitive data management. The librarian role, which involves managing documentation and manuals, can be combined with the Database Administrator function if staffing is too limited, but with controls to prevent unauthorized database changes.

Control measures such as role-based access, periodic audits, and logs should be instituted. For example, Carla can oversee user rights assignments, giving the Bookkeeper, sales staff, and mechanics limited, role-specific permissions. She also needs to ensure that one individual does not have both authorization and transaction completion powers without oversight, particularly for financial or inventory data.

Overall, a pragmatic segregation plan might involve Carla assuming the primary IT oversight roles, with each staff member assigned based on their roles and responsibilities. While perfect segregation isn’t feasible in such a small operation, implementing layered controls and clear policies can significantly mitigate risks.

Additional Controls for Information Systems

Beyond segregation of duties, Tom should implement other general controls to enhance system reliability and security:

1. Physical Security: Protect hardware components by restricting access to server rooms and critical hardware. Physical controls prevent unauthorized personnel from tampering with devices or data.
2. Access Controls and Authentication: Employ strong password policies, multi-factor authentication, and user-specific access rights. This reduces the risk of unauthorized access and ensures accountability.
3. Backup and Recovery Procedures: Regularly perform data backups stored off-site or in secure locations. This control safeguards against data loss due to hardware failure, theft, or disaster.
4. System and Data Monitoring: Implement audit logs and monitoring tools that record user activities and system changes, enabling timely detection of suspicious actions and facilitating investigations.

These controls are fundamental for maintaining the integrity, confidentiality, and availability of data. In a small business like Tom’s, automation of these controls, along with clear procedures and staff training, can prevent costly errors and security breaches.

Analysis of CPA-Style Audit Multiple-Choice Questions

Question a: The auditor examines duplicate sales invoices to verify invoice accuracy. The best answer is (iii) a substantive test of transactions. This test directly assesses whether the transactions were accurately recorded, which is the purpose of substantive tests. While verifying duplicate invoices can also support control tests, in this context, the focus is on transaction accuracy, making (iii) the most appropriate choice.

Answer: (iii) a substantive test of transactions.

Explanation: The key purpose here is to verify that sales invoices reflect actual, accurate transactions, which aligns with substantive testing rather than control testing or confirmation.

Question b: The logical order of evaluating internal controls involves first understanding and determining control deficiencies, then assessing whether controls are properly designed and followed, and finally analyzing potential errors. The most logical sequence is: I, III, IV, II, corresponding to (ii).

Answer: (ii) I, III, IV, II.

Explanation: First, identify controls (I), then evaluate if they are implemented correctly (III), consider the nature of potential errors (IV), and finally assess deficiencies and implications for audit procedures (II). This ensures a systematic control evaluation process.

Question c: The primary goal of tests of controls is to obtain sufficient evidence that controls are operating effectively on a consistent basis (option i). To test controls, techniques such as reperformance (option ii) enhance reliability. Reperformance involves independent execution of control procedures to verify their effectiveness.

Answer: (ii) reperformance.

Explanation: Reperformance directly tests the operational effectiveness of controls, making it a preferred method over analysis, confirmation, or comparison in most control testing contexts.

Question d: Tests of controls are most likely to be omitted when the assessed control risk is low, meaning the controls are believed to be effective, and extensive testing is unnecessary (option ii). When control risk is less than maximum, the auditor relies more on substantive procedures.

Answer: (ii) control risk is assessed at less than the maximum.

Explanation: A lower assessed control risk reduces the need for extensive tests of controls, allowing auditors to focus on substantive evidence.

Conclusion

In small, resource-constrained businesses like Tom’s Trailer Sales, strategic delegation and partial segregation of IT duties, complemented by robust controls, are vital. Embedding physical, access, backup, and monitoring controls enhances overall system security and reliability. Evaluating audit tests requires understanding the purpose of each procedure and selecting methods that provide sufficient, appropriate evidence without unnecessary effort. These measures collectively foster a secure, efficient, and compliant information environment that supports the business's growth and integrity.

References

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