Week 7 Homework Questions Download The Attached Word Documen

Week 7 Homework Questionsdownload The Attached Word Document Type In

Read the assignment instructions carefully and provide comprehensive answers to the questions related to Tom's Trailer Sales case. Your responses should demonstrate understanding of IT roles segregation, controls over information systems, and audit testing of controls, applying concepts to a small business context. Use appropriate academic references to support your explanations and ensure your submission is properly formatted with your name and "HW7".

Paper For Above instruction

Tom's Trailer Sales, a small recreational vehicle business owned by Tom Sullivan, operates with a modest staff and limited technological infrastructure. The case highlights several critical aspects of information technology (IT) management, including the segregation of IT duties, implementation of control measures, and understanding audit procedures related to internal controls. Given the small scale of the business, this analysis discusses how Tom can optimally allocate IT roles, recommends additional controls to safeguard information systems, and explores relevant audit tests, providing a comprehensive view tailored for a small enterprise.

Segregation of IT Duties at Tom's Trailer Sales

In small organizations like Tom’s Trailer Sales, achieving perfect segregation of IT duties is often challenging due to limited personnel. According to Figure 12-2, nine IT roles include the Chief Information Officer (CIO)/IT Manager, Security Administrator, Systems Analyst, Programmer, Computer Operations, Librarian, Network Administrator, Data Input/Output Control, and Database Administrator. The goal in small settings is to distribute these responsibilities in a manner that minimizes risks without overwhelming the staff or requiring new hires.

Considering Carla’s involvement as an outsourced IT consultant, her duties can be structured to encompass several critical areas while ensuring control over the system. She could serve as the System Analyst and oversee the design and implementation, while the internal bookkeeper and Tom himself can take on roles like Data Input/Output Control and basic system supervision. The bookkeeper could handle data input, the sales staff could be responsible for data entry on sales forms, while Tom as the owner would oversee operational oversight. Carla, as an external consultant, could also be assigned as the Security Administrator to establish protocols for access control and safeguard sensitive data. The network administration functions could be delegated collectively or to Carla temporarily, especially during initial setup phases.

To maximize control given the small team, Tom should ensure that duties are separated where possible. For example, roles involving system administration and data input should be assigned to different individuals to prevent conflicts of interest. Since all employees operate certain computer tasks, creating clear policies and access controls is vital. Carla, acting as a designated IT consultant, can help develop these protocols, ensuring that even with limited staffing, proper segregation and oversight are maintained. The plan should address oversight of system access, backups, and data integrity checks to detect and prevent errors or fraudulent activities.

Additional Controls Over Information Systems

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

  1. Physical Controls: Limiting physical access to hardware prevents unauthorized personnel from tampering with computer equipment. Installing locks, surveillance, and secure storage areas help protect assets and sensitive data.
  2. Access Controls: Establishing user authentication procedures such as passwords, biometric verification, and role-based access ensures only authorized personnel can access specific systems or data, reducing the risk of insider threats.
  3. Backup and Recovery Procedures: Regular backups of data and system configurations protect against data loss from hardware failure, theft, or cyberattacks. Testing recovery procedures ensures that data integrity can be restored swiftly when needed.
  4. Change Management Controls: Recording and reviewing changes to hardware and software configurations prevent unauthorized modifications that could compromise system integrity. This control promotes accountability and traceability of modifications.

These controls collectively help mitigate risks associated with physical threats, unauthorized access, data loss, and system alterations, which are particularly critical for small businesses with limited IT resources and personnel.

Audit Tests of Controls: Best Practices and Evaluation

Question A

The audit test involves examining duplicate sales invoices to verify if the accuracy of invoice processing has been confirmed. The best answer is: iii) a substantive test of transactions.

This test directly evaluates transaction accuracy rather than controls or balances. It involves detailed verification of specific transactions, such as matching invoices with sales records, to ensure correctness. Unlike a test of control (ii), which assesses the effectiveness of internal controls, a substantive test reconstructs the transaction's correctness. Option i) pertains to balances, which is not the focus here, and option iv) includes both tests, which is unnecessary in this specific case.

Therefore, this test is primarily a substantive test aimed at verifying the transaction details directly.

Question B

The correct sequence of evaluating internal controls involves:

  • 1. Identifying controls that should prevent or detect errors or fraud (I).
  • 2. Evaluating whether prescribed control procedures are followed and effective (III).
  • 3. Determining control deficiencies and their impact on audit procedures (II).
  • 4. Considering the types of errors and fraud possible (IV).

This logical order ensures that auditors first understand what controls should exist, verify if they are in place and working, then evaluate deficiencies and their implications, and finally analyze potential errors or frauds based on control findings.

The correct answer is: ii) I, III, IV, II.

Question C

The primary objective of tests of controls is to:

  • i) Obtain reasonable assurance that controls operate effectively throughout the period.
  • ii) Gather sufficient appropriate audit evidence to support an opinion without relying excessively on controls.
  • iii) Ensure disclosures in financial statements are adequate.
  • iv) Understand the client’s procedures.

The best answer is: i) a reasonable degree of assurance that the client's internal controls are operating effectively on a consistent basis throughout the year.

This reflects the core purpose of testing controls—to confirm ongoing control effectiveness over time, enabling the auditor to plan substantive procedures accordingly.

Question D

To assess control effectiveness, auditors often use:

  • i) Analysis
  • ii) Reperformance
  • iii) Confirmation
  • iv) Comparison

The best answer is: ii) reperformance.

Reperformance involves independently executing control procedures to verify their operation, making it a direct and effective technique for testing control effectiveness. Analysis and comparison are more about evaluation and assessment, while confirmation typically relates to external evidences not directly linked to internal control testing.

References

  • Arens, A. A., Elder, R. J., & Beasley, M. S. (2017). Auditing and Assurance Services: An Integrated Approach. Pearson.
  • Goodwin, J. (2019). Auditing: A Risk-Based Approach. Cengage Learning.
  • Hattel, M. L. (2018). Internal Control and Fraud Prevention. CPA Journal.
  • Institute of Internal Auditors. (2020). International Professional Practices Framework (IPPF). IIA.
  • Shafer, W. E., & Stokes, D. J. (2019). Auditing & Assurance Services: An Integrated Approach. McGraw-Hill Education.
  • Albrecht, S. L., Albrecht, W. S., Albrecht, C. C., & Zimbelman, M. F. (2018). Fraud Examination. Cengage Learning.
  • Wells, J. T. (2020). Contemporary Auditing. Pearson.
  • Choi, F. D. S., & Lamb, R. P. (2018). Auditing Information Systems. Prentice Hall.
  • Messier, W. F., Glover, S. M., & Prawitt, D. F. (2019). Auditing & Assurance Services. McGraw-Hill.
  • ISA 315. (2019). Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment. International Standards on Auditing.

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