During its assessment of the accounts payable department, the internal audit function identified the following observations, which have been agreed to by management;
I.. Inadequate segregation of duties over certain information system access controls. Potential loss exposure of $45 million.
II. Several instance of transactions that were not properly recorded in subsidiary ledgers. Transactions were not material either individually or in the aggregate. Potential loss exposure of $60 million.
III. A lack of timely reconciliation of the account balances affected by the improperly recorded transactions. Potential loss exposure of $25 million.
Management and the independent auditors has determined that an amount less than $20 million is inconsequential in impact and that an amount greater than $80 million is material in impact.
A. Based only on these facts, determine the following for each observation;
The COSO objectives category affected by each observation.
Classify each observation in terms of its design adequacy and operating effectiveness.
Assess whether each observations is insignificant, significant or material.
4. And finally, provide your overall conclusions for this audit of accounts payable.
B. Describe what should be communicated and to whom, regarding these observations and conclusions by:
Please use the below format for your submitted answers, using a table or spreadsheet:
I. Segregation of Duties II. Subsidiary ledger errors III. Untimely reconciliations
A1. COCO objective
A2. Design adequacyor Operational effectiveness
A3. Insignificant, Significant Material
A4. Overall conclusions
B1. IA reporting
B2. Management reporting