For each of the following independent cases, state the highest level of deficiency that you believe the circumstances represent-a control deficiency, a significant deficiency, or a material weakness. Explain your decision in each case.
The company processes a significant number of routine intercompany transactions. Individual intercompany transactions are not material and primarily relate to balance sheet activity for example, cash transfers between business units to finance normal operations.
A formal management policy requires monthly reconciliation of intercompany accounts and confirmation of balances between business units. However, there is not a process in place to ensure performance of these procedures.
As a result, detailed reconciliations of intercompany accounts are not performed on a timely basis.
Management does perform monthly procedures to investigate selected large-dollar intercompany account differences.
In addition, management prepares a detailed monthly variance analysis of operating expenses to assess their reasonableness.