Assignment:
Internal controls can be categorized using the following framework:
1. Control environment
2. Risk assessment
3. Information and communication
4. Control activities
4.1. Authorization
4.2. Performance reviews
4.3. Information-processing controls
4.3.1. IT general controls
4.3.2. IT application controls
4.3.3. IT-dependent manual controls
4.4 Physical controls
4.5 Segregation of duties
5. Monitoring
Following is a list of controls implemented by Waterfront, Inc.
a. Management established a code of conduct that includes rules regarding conflicts of interest for purchasing agents.
b. Waterfront's management established a disclosure committee to review the selection of new accounting policies.
c. Any software program revision must be approved by user departments after testing the entire program with test data.
d. The managers of each of Waterfront's manufacturing departments must review expenditures charged to their responsibility center weekly.
e. The CEO, CFO, and controller review the financial consequences of business risks annually to ensure that controls are in place to address significant business risks.
f. Human resources focuses on ensuring that accounting personnel have adequate qualifications, experience, and training for work performed in billing and accounts receivable.
g. Security software limits access to programs and data files, and keeps a continuous log of programs and files that have been accessed. The log is reviewed by the security manager daily.
h. A software program prints a daily report of all shipments that have not yet been billed to customers.
i. The controller reviews sales and collections bi-monthly.
j. The software application compares the information on the sales invoice with underlying shipping information for the transaction.
k. Customer billing complaints are directed to internal audit for follow-up and resolution.
l. The documentary transaction trail for all credit sales is documented in compnay policy manuals.
m. Waterfront uses a Microsoft Excel program to calculate depreciation expense. An accounting manager tests the calculations on a sample basis and evaluates the overall reasonableness of depreciation expense.
Required:
a. Indicate the category of internal control applicable to each procedure using the framework above.
b. Identify the assertion or assertions to which each procedure pertains.