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What challenges do you face in complying with SAS 115?
Evaluating the severity of identified internal control deficiencies to determine if they must be communicated to your client.
Determining how a client’s compensating controls can affect the severity of identified deficiencies.
Aggregating identified deficiencies to determine whether they are material weaknesses or significant deficiencies.
Writing clearly worded comments related to material weaknesses or significant deficiencies identified during the audit.
In 2009, the AICPA issued SAS 115, Communicating Internal Control Related Matters Identified in an Audit, which supersedes SAS 112 of the same name and establishes new standards for making internal control communications to your clients. SAS 115 makes significant changes to the communication requirements, including revising the underlying definitions and changing the way you evaluate the severity of identified internal control deficiencies to determine whether they should be communicated to your client.
PPC’s Guide to Internal Control Communications will help you understand these changes and how they affect the required communications by showing you how to:
Evaluate, aggregate, and classify identified internal control deficiencies noted during the audit.
Prepare internal control communications required by SAS 115.
This Guide will provide:
Hundreds of illustrative communication examples covering the internal control deficiencies you are likely to encounter in your audit engagements.
Comments categorized by audit area to help you find just the right one.
An index of comments to help you identify potential internal control comments during your audit.
Guidance on evaluating the severity of those deficiencies to determine whether they are control deficiencies, significant deficiencies, or material weaknesses.
Guidance on aggregating the deficiencies to see if they rise to the level of something you must communicate.
Practice aids to help with evaluation and aggregation.
Guidance on the form of the required communication report, not just the comments that are included.
Help with specified issues, such as whether preparing financial statements for your clients always results in a material weakness or a significant deficiency, which must be communicated to your client.
TOC for ICC
INTRODUCTORY MATERIAL
PREFACE
HOW TO USE THE GUIDE
ACKNOWLEDGMENTS
ABOUT THE AUTHORS. . .
LIST OF SUBSTANTIVE CHANGES AND ADDITIONS
CHAPTER 1: INTRODUCTION AND OVERVIEW
100 INTRODUCTION AND BACKGROUND
Introduction
101 OVERVIEW OF SAS NO. 115
Introduction
Identifying Control Deficiencies
Evaluating the Severity of Control Deficiencies
Communicating Significant Deficiencies and Material Weaknesses
102 SCOPE OF THIS GUIDE
How to Use This Guide
Overview of This Guide
103 DEFINITIONS
CHAPTER 2: IDENTIFYING AND EVALUATING INTERNAL CONTROL DEFICIENCIES
200 INTRODUCTION AND AUTHORITATIVE LITERATURE
201 UNDERSTANDING CONTROL DEFICIENCIES
Deficiencies in Design
Deficiencies in Operation
Control Testing Exceptions.
Examples of Control Deficiencies
Sample Control Deficiency Comments.
202 IDENTIFYING CONTROL DEFICIENCIES
Identifying Deficiencies during the Course of the Audit
Identifying Deficiencies When Performing Further Audit Procedures
Evaluating the Severity of Deficiencies
Awareness of Deficiencies Varies with Each Audit
203 PPC'S PROCESS FOR EVALUATING THE SEVERITY OF CONTROL DEFICIENCIES
Process Flowchart
204 EVALUATING CONTROL DEFICIENCIES
Defining Material Weaknesses under SAS No. 115
Indicators of Material Weaknesses.
Defining Significant Deficiencies under SAS No. 115
Evaluating the Severity of Control Deficiencies
Determining Whether There is a Material Weakness.
Qualitative Considerations
Compensating Controls
Prudent Official Test
205 AGGREGATING CONTROL DEFICIENCIES
Control Deficiency Evaluation and Aggregation Worksheets
SAS No. 115.
206 PRACTICE ISSUES
Can the Auditor Prepare the Financial Statements?
Relationship between SAS No. 115 and AICPA Ethics Rules.
Examples Where Auditor Assists with Financial Statements.
Lack of Segregation of Duties
Auditor Identifies a Material Misstatement
Occurrence of Fraud
207 PPC PRACTICE AIDS
Control Deficiency Evaluation and Aggregation Worksheet
Control Deficiency Comment and Management Point Development Worksheet
APPENDIX 2A: Control Deficiency Evaluation and Aggregation Worksheet
CHAPTER 3: COMMUNICATING INTERNAL CONTROL DEFICIENCIES IDENTIFIED DURING THE AUDIT
300 INTRODUCTION
301 DECIDING TO WHOM THE COMMUNICATION SHOULD BE MADE
302 TIMING OF THE COMMUNICATION
303 COMMUNICATING SIGNIFICANT DEFICIENCIES
Required Elements of the Auditor's Communication
Impact When Audit of Financial Statements Includes a Scope Restriction.
Illustrative Communication When Only Significant Deficiencies Identified
Material Weaknesses Identified
Drafting Forms
304 OTHER MATTERS THAT MIGHT BE COMMUNICATED
Inherent Limitations of Internal Control
Nature and Extent of the Consideration of Internal Control
Using the Work of Other Auditors
Inadequate Separation of Duties
Lack of Controls over the Financial Reporting Process
Existence of Significant Deficiencies or Material Weaknesses Already Known to Management
305 COMMUNICATING MATERIAL WEAKNESSES
Required Elements
Illustrative Communication
Drafting Forms
306 RESTRICTING THE USE OF THE COMMUNICATION
307 COMMUNICATING RECURRING ITEMS
Options for Indicating Comments Were Previously Communicated
308 REFERRING TO MANAGEMENT'S RESPONSE IN THE AUDITOR'S COMMUNICATION
Management's Response to the Communication
Disclaiming an Opinion on Management's Response
Attesting to the Client's Remediation of a Control Deficiency
Auditor Disagrees with Management's Response
309 COMMUNICATING WHEN THERE ARE NO SIGNIFICANT DEFICIENCIES
310 COMMUNICATING NO MATERIAL WEAKNESSES IN A SEPARATE LETTER
Illustrative Communication
Drafting Form
311 MANAGEMENT LETTER COMMENTS
312 COMMUNICATIONS ON INTERNAL CONTROL REQUIRED BY THE U.S. GOVERNMENT ACCOUNTABILITY OFFICE
APPENDIX 3A: Auditor's Communications on Internal Control
APPENDIX 3A-1: Communication of Significant Deficiencies (Drafting Form)
APPENDIX 3A-2: Communication of Significant Deficiencies and Material Weaknesses (Drafting Form)
APPENDIX 3A-3: Communication of No Material Weaknesses in a Separate Report (Drafting Form)
CHAPTER 4: DEVELOPING COMMENTS ABOUT SIGNIFICANT DEFICIENCIES AND MATERIAL WEAKNESSES
400 INTRODUCTION
Organization of Chapter
Comments Related to Deficiencies That Are Indicators of Material Weaknesses.
Comments Related to Deficiencies That Might Indicate the Existence of Significant Deficiencies.
401 DEVELOPING SPECIFIC COMMENTS
Considering the Level of Detail to Communicate
Considering the Information to Include
Classification of Comment as a Significant Deficiency or Material Weakness
Control Deficiency Comment and Management Point Development Worksheet
402 CASH
Controls over Recording
Establish Initial Control Over Cash Receipts.
Log in Cash Receipts.
Prepare a Daily Cash Receipts Listing.
Maintain a Daily Detailed Cash Report.
Immediately Endorse and Log In Checks Received with Orders.
Have the Bank Send a Receipted Copy of the Deposit Slip.
Apply Cash Receipts and Credit Memos to Specific Invoices.
Apply Cash Receipts to Specific Invoices.
Deposit Receipts Daily and Segregate Duties.
Record Checks on a Timely Basis.
Record Disbursements in the Proper Accounting Period.
Prevent Payment for Goods Not Received.
Keep Petty Cash on an Imprest Basis.
Keep Petty Cash Funds on an Imprest Basis.
Keep Petty Cash Funds on an Imprest Basis.
Date Payroll Checks as of the Day Written.
Issue Payroll Checks in Numerical Order.
Document Cash Awards.
Segregation of Duties
Segregate Cash Disbursements Responsibilities.
Establish Controls over Cash Receipts.
Prepare Cash Receipts Vouchers.
Segregate Cash Receipts Duties.
Segregate Cash Receipts Duties and Eliminate Redundant Entries.
Segregate Cash Receipts Duties.
Segregate Cash Receipts Duties.
Segregate Cash Receipts Duties.
Segregate the Preparation and Mailing of Checks and Cancel Paid Invoices.
Segregate Wire Transfer Activity.
Restrict Access to Blank Payroll Checks.
Establish Unclaimed Payroll Checks Policy.
Improve Segregation of Accounting Department Duties.
Improve Segregation of Accounting Duties.
Improve Controls over Commission Checks.
Reconcile Bank Accounts on a Timely Basis and Segregate Cash Duties.
Segregate Accounting Duties.
Segregate Cash Duties.
Segregate Cash Receipts Duties.
Segregate Cash Receipts Duties.
Segregate Cash Receipts Duties.
Segregate Cash Receipts Duties.
Segregate Cash Receipts Duties.
Improve Segregation of Cash Duties.
Improve Segregation of Cash Duties.
Segregate Bank Reconciliation Duties.
Segregate Bank Reconciliation Duties.
Limit Access to Items Returned from the Bank.
Segregate Preparation and Mailing of Checks and Cancel Paid Invoices.
Improve Segregation of Duties over Cash--Two-person Office.
Improve Segregation of Duties over Cash--Three-person Office.
Improve Segregation of Duties over Cash--Four-person Office.
Reconciliations
Use Separate Ledger Accounts and Prepare a Record of All Bank Transfers.
Reconcile Accounts to Supporting Documents.
Reconcile Bank Accounts on a Timely Basis.
Improve Bank Reconciliation Procedures.
Improve Bank Reconciliation Procedures.
Attach a List of Outstanding Checks to the Bank Reconciliation.
Review Bank Reconciliations.
Approve and Then Set Up a File for All Bank Reconciliations.
Investigate Old Outstanding Checks.
Investigate Old Outstanding Checks.
Investigate Old Outstanding Checks.
Investigate Old Outstanding Checks.
Investigate Old Outstanding Checks and Other Old Uncleared Reconciling Items.
Investigate Unreconciled Amounts in the Checking Account.
Investigate Differences between the Bank Statement Balance and the General Ledger.
Reviews and Approvals
Designate Employees for Cash Reconciliation, Review, and Oversight.
Review for Irregular Endorsements.
Review Outgoing Wire Transfer Procedures.
Accompany Checks Submitted for Signature with Supporting Invoices or Check Requests.
Accompany Checks Submitted for Signature with Supporting Documents.
Keep Petty Cash Funds on an Imprest Basis.
Use Petty Cash Vouchers.
Use Petty Cash Vouchers.
Have Management Review Bank Statements.
Improve Review of Bank Reconciliations.
Review Bank Reconciliations.
Approve Bank Reconciliations.
Policies and Procedures
Prohibit Writing Checks to "Cash."
Prohibit the Signing of Blank Checks.
Prohibit the Signing of Blank Checks.
Establish a Check Signing Policy.
Improve the Check Signing Policy.
Improve the Check Signing Policy.
Improve the Check Signing Policy.
Improve Check Signing Procedures.
Determine Authenticity of Unfamiliar Vendors and Payees before Signing Checks.
Improve Procedures for Using Check Signing Machine.
Limit Access to the Check Signing Machine.
Require Dual Signatures on Checks.
Prohibit the Signing of Checks in Advance.
Establish a Threshold for Dual Signatures on Checks.
Establish a Threshold for Mechanical Signatures on Checks.
Limit the Number of Authorized Check Signers.
Maintain an Authorized Check Signer List.
Remove Terminated Employees from the List of Authorized Check Signers.
Control the Numerical Sequence of Checks Used.
Control the Numerical Sequence of Checks Used.
Prohibit Use of Unnumbered Replacement Checks.
Deface Voided Checks.
Maintain Voided Checks.
Improve Cash Receipts Procedures.
Avoid Returning Checks to Requisitioners.
Determine Authenticity of Unfamiliar Vendors and Payees before Signing Checks.
Cancel Documents Supporting Disbursements.
Stamp the Check Number on Paid Invoices.
Cancel, Initial, and Properly File Invoices Being Paid.
Deface Voided Checks.
Use One Petty Cash Fund.
Void Erroneous Petty Cash Advances Slips.
Cancel Petty Cash Vouchers.
Access Controls
Use a Separate Bank Account for Payroll.
Improve Safety Deposit Box Security.
Control Blank Checks.
Control Blank Checks.
Improve Safekeeping of Securities Investment Certificates.
Use a Lockbox System.
Use a Lockbox System.
Endorse Checks "For Deposit Only."
Deposit Cash Receipts on a Timely Basis.
Deposit Unidentifiable Cash Receipts.
Use a Separate Payroll Bank Account.
Use Technology to Reduce Paycheck Fraud.
Use Positive Pay Service.
Improve Online Banking Access Security.
403 RECEIVABLES/SALES
Controls over Recording
Communicate Salesmen Price Quotes to the Billing Clerk.
Improve Sales Department Communication of Customer Claims to the Accounting Department.
Notify the Accounting Department of Pending Claims Receivable.
Establish a Policy for Cancellations of Renewal Billings.
Recalculate Discounts Taken by Customers.
Approve Cash Discounts Taken by Customers Not Entitled to Them.
Apply Cash Receipts to Specific Invoices.
Apply Cash Receipts and Credit Memos to Specific Invoices.
Accrue Miscellaneous Income.
Maintain Documentation of Terms and Discounts.
Use Written Credit Memo Forms.
Note the Issuance of Credit Memos on Invoices.
Process Returns Promptly.
Issue Credit Memos for Invoice Adjustments.
Apply Credits to Proper Invoices.
Monitor Exchange Rates for Intercompany Payables/Receivables.
Prepare an Aging of Accounts Receivable Balances.
Control Accounts Given to Collection Agencies.
Write off Uncollectible Accounts Correctly.
Improve the Method of Writing Off Uncollectible Accounts.
Agree Contract Billings with the Accounts Receivable Subsidiary Ledger.
Improve Procedures over Phone Sales.
Immediately Endorse and Log In Checks Received with Orders.
Document Shipments.
Prepare Shipping Documents.
Notify Salesmen of Updated Pricing More Quickly.
Properly Code Sales Tax Status in Customer Files.
Segregation of Duties
Segregate Accounts Receivable Duties.
Segregate Accounts Receivable Duties.
Segregate Accounts Receivable Duties.
Improve Segregation of Accounting Department Duties.
Reconciliations
Reconcile Accounts Receivable Periodically.
Prepare Accounts Receivable Reconciliations.
Document Accounts Receivable Reconciliations.
Reconcile the General Ledger Balance with the Subsidiary Ledger.
Reconcile the Summary and Detail Aged Accounts Receivable Trial Balances.
Reconcile Accounts to Supporting Documents.
Reconcile the Employee Loans Account.
Reconcile Intercompany Accounts Monthly.
Reviews and Approvals
Prepare an Aged Trial Balance of Accounts Receivable.
Review the Detail of Accounts Receivable for Unusual Items.
Monitor Overdue Accounts Receivable Aging.
Monitor Overdue Accounts Receivable Aging.
Monitor Accounts Receivable and Review the Collection Policy.
Require the Credit Department to Report to Management.
Send Accounts Receivable Customer Statements.
Enforce Customer Credit Terms and Limits.
Review Documentation Supporting Credit Memos.
Indicate Approval of Credit Memos.
Manually Age Special Accounts.
Review the Aged Trial Balance.
Review the Allowance for Doubtful Accounts for Unexpected Items.
Prepare an Accounts Receivable Collection Activity Report.
Approve Write-offs.
Review Rebate Receivables.
Policies and Procedures
Monitor Accounts Receivable and Review the Collection Policy.
Improve Collection Efforts and the Credit Policy.
Establish a Policy for Cancellations of Renewal Billings.
Improve Debit and Credit Forms.
Send Accounts Receivable Customer Statements.
Establish a Formal Credit Policy.
Establish Credit Approval Guidelines.
Establish Credit Approval Procedures.
Establish Credit Approval Procedures.
Prepare Receiving Reports and Prenumber Credit Memos for Returns.
Discontinue Issuing Notes Receivable.
Number Faxed or Mailed Sales Orders.
Improve Controls over Checks Received by Sales Clerks.
Improve Controls over Cash Register Sales.
Obtain Acknowledgements for Merchandise Picked Up by Customers.
Obtain Signed Change Orders.
Maintain a Shipping Log.
Have Shipping Personnel Sign a Shipping Document.
List Sales Orders by Invoice Number.
Establish Controls to Detect Underringing of Bar Sales.
Use Prenumbered Order Forms for Phone Orders.
Keep Bills of Lading in Numeric Order.
Use Cash Register Control Numbers to Control Close-outs.
Update Price Lists to Reflect Policy on Quantity Discounts.
Eliminate Inconsistencies in Pricing Policy.
Establish Price Lists by Customer.
Document Oral Price Quotes.
Indicate Clerical Check on Sales Invoices.
Develop a Revenue Recognition Policy for Online Sales.
Valuation
Improve the Method of Establishing an Allowance for Uncollectible Accounts Receivable Balances.
Monitor Exchange Rates for Intercompany Payables/Receivables.
Review the Interim Allowance for Doubtful Accounts.
Review the Allowance for Doubtful Accounts.
Review the Allowance for Doubtful Accounts.
Make Use of Data on Sales Cancellations and Subscription Nonrenewals.
Reconcile the Employee Loans Account.
Revenue Recognition
Communicate and Coordinate Customer Arrangements.
Document Significant Operational and Accounting Processes.
Recognize Finance Charge Revenue When Received.
Do Not Recognize Finance Charge Revenue on Old Accounts.
Properly Account for Partial Shipments.
Reconcile Recorded Revenue to Resident Data.
Defer Recognition of Revenue on Advance Billings until Earned.
Related Party Transactions
Authorize and Review Advances Made to Employees.
Establish Separate Accounts for Related-party Receivables/Payables.
Consider Accounts Receivable from Officers.
Establish a Separate Account for Intercompany Sales.
Establish a Separate Account for Intercompany Sales.
Improve Procedures Relating to Intercompany Accounts.
Increase Oversight of Subsidiaries' Accounting.
404 INVENTORY/COST OF SALES
Controls over Recording
Address Inventory Cost Accounting Process.
Improve Inventory Cut-off Procedures.
Improve Inventory Tracking.
Establish a Perpetual Inventory System--to Avoid Significant Adjustments.
Establish a Procedure for Tracking Work-in-process Inventory.
Update Perpetual Records Immediately upon Receipt of Goods.
Maintain Perpetual Inventory Records and Perform Cycle Counts.
Adjust the Perpetual Inventory Records to the Physical Inventory Count.
Document Receiving Dates.
Properly Date Receiving Reports.
Process Returns Promptly.
Document Shipments.
Properly Report Shipments, Damaged Goods, Seconds, and Waste.
Control Parts Substitutions.
Audit Bills of Materials for Accuracy.
Use More Realistic Inventory Shrinkage Factors in Cost Standards.
Improve Controls over Scrap Sales.
Improve Control over Merchandise Received or Sold on Consignment.
Enter All Inventory Items in the Computer.
Eliminate Duplicate Item Numbers in the Inventory Listing.
Recheck the Inventory Listing for Clerical Accuracy.
Use Prenumbered Receiving Reports for a Proper Inventory Cutoff.
Eliminate Intercompany Profit in LIFO Inventory.
Update Labor and Overhead Standards.
Base Inventory Prices on the Invoice Price Rather than on the Purchase Order Price.
Exclude Administrative Expenses from Inventory.
Use Weighted-average Cost Rather than Replacement Cost for Inventory Pricing.
Adopt a Uniform Policy for the Treatment of Inventory Variances.
Track Vendor/Buyer Group Rebates.
Address Inventory Cost Accounting Process.
Improve Inventory Costing.
Adopt a Uniform Policy for the Treatment of Inventory Variances.
Segregation of Duties
Compensating Controls over Inventory.
Use Two People to Count Inventory.
Adjust the Perpetual Inventory Records to the Physical Inventory Count.
Reconciliations
Establish Perpetual Records for Certain Items.
Maintain Perpetual Inventory Records and Perform Cycle Counts.
Prepare Monthly Reconciliations of Perpetual Inventory Records to the General Ledger.
Reconcile Differences between Perpetual Inventory Records and the General Ledger Account.
Reconcile Ward and Outcomes Reporting.
Reconcile Outcomes Information System and Martel Reporting System.
Reviews and Approvals
Improve Review for Inventory Obsolescence.
Recheck the Inventory Listing for Clerical Accuracy.
Policies and Procedures
Account for the Sequence of Receiving Reports.
Prevent Payment for Goods Not Received.
Improve Receiving Processes.
Develop LIFO Procedures.
Use Prenumbered Receiving Reports for a Proper Inventory Cutoff.
Access Controls
Use Prenumbered Requisition Forms for Access to Storerooms.
Return Unused Materials to the Storeroom.
Maintain Physical Security and Control over Inventory.
Valuation
Address Inventory Cost Accounting Process.
Use the Correct Materials Codes in Receiving and Counting Inventory.
Rotate Inventory Stock.
Pricing of Physical Inventory Counts.
Adopt Standard Inventory Valuation Procedures.
Develop LIFO Procedures.
Update Labor and Overhead Standards.
Base Inventory Prices on the Invoice Price Rather than on the Purchase Order Price.
Exclude Administrative Expenses from Inventory.
Use Weighted-average Cost Rather than Replacement Cost for Inventory Pricing.
Obsolescence
Periodically Review for Obsolescence.
Improve Review for Inventory Obsolescence.
Adopt Quantitative Measures for Determining Inventory Obsolescence.
Rotate Inventory Stock.
Remove Obsolete Items from Inventory Areas.
Dispose of Obsolete Inventory.
Address Inventory Cost Accounting Process.
Manage Obsolete and Slow-moving Inventory.
Physical Counts
Establish Inventory Count Procedures.
Establish a Perpetual Inventory System--to Avoid Significant Adjustments.
Establish Perpetual Records for Certain Items.
Establish a Procedure for Tracking Work-in-process Inventory.
Maintain Perpetual Inventory Records and Perform Cycle Counts.
Adjust the Perpetual Inventory Records to the Physical Inventory Count.
Adopt a Stores Inventory System.
Segregate Bulk Materials in Identifiable Lots.
Improve Control over Merchandise Received or Sold on Consignment.
Segregate Preparation and Mailing of Checks and Cancel Paid Invoices.
Segregate Accounting Duties.
Segregate Accounts Payable and Purchasing Duties.
Review by Management of the Accounts Payable Function.
Reconciliations
Record All Capital Expenditures.
Establish Separate Accounts for Related-party Receivables/Payables.
Prepare a Monthly Trial Balance of Outstanding Accounts Payable.
Reconcile Accounts to Supporting Documents.
Reconcile Accounts Payable Detail to the General Ledger.
Reconcile Vendor Statements to the Accounts Payable Subsidiary Ledger.
Reconcile the Accounts Payable Subsidiary Account to the General Ledger Accounts.
Retain Monthly Reconciliations of Accounts Payable Statements.
Reconcile Unrendered Invoices.
Reviews and Approvals
Mark Invoices with an Indication of Review, Approval, and Payment.
Approve Purchases.
Require Supervisor Approval for Purchase of Items Not on Bid List.
Approve Payment of Nonmerchandise Payables.
Improve Accounts Payable Recording and Payment Practices.
Review and Update the Voucher System.
Prenumber, Authorize, and Account for Debit and Credit Memos.
Periodically Review the Miscellaneous Payables Account.
Check Data on All Invoices to Purchase Orders.
Review Vendor Lists.
Use Master Vendor File.
Compensating Controls over Purchases.
Prepare and Approve Purchase Orders before Items Are Received.
Monitor the Payment and Recording of Expenses.
Use a Worksheet for Allocation of Expenses.
Periodically Review the Commission Accrual.
Review Expense Reports and Records for Unusual Matters.
Policies and Procedures
Prenumber, Authorize, and Account for Debit and Credit Memos.
Immediately Send Incoming Invoices to the Accounting Department.
Enter Disputed Invoices into Accounts Payable.
Cancel, Initial, and Properly File Invoices Being Paid.
Cancel Invoices and Supporting Documents.
Stamp the Check Number on Paid Invoices.
Avoid Returning Checks to Requisitioners.
Match Purchase Orders with Other Documentation When a Shipment Is a C.O.D.
Use Prenumbered Receiving Reports for Assurance That Payment Is for Goods Received.
Use Prenumbered Receiving Reports for a Proper Inventory Cutoff.
Promptly Submit Receiving Data to the Accounting Department.
Use a Worksheet for Allocation of Expenses.
Establish a Warranty Accounting Policy.
Develop a System for Tracking Research and Development Costs.
410 PAYROLL, EMPLOYEE BENEFITS, AND RELATED LIABILITIES
Controls over Recording
Have Employees Sign and Submit Time Cards to Managers.
Check the Calculation of Gross Pay.
Maintain Records Necessary for Accruing Vacation.
Consider the Rules Relating to Employees' Personal Use of an Employer-provided Auto.
Identify, Account for, and Charge Employees for Personal Expenses.
Segregation of Duties
Use an Outside Payroll Processing Service.
Check W-2 Forms and Control Their Mailing.
Review Job Descriptions.
Require Employees to Take Vacations.
Require Employees to Take Vacations.
Segregate Payroll Duties and Strengthen Internal Control.
Segregate Payroll Duties.
Improve Segregation of Duties over Payroll--Two-person Office.
Improve Segregation of Duties over Payroll--Three-person Office.
Improve Segregation of Duties over Payroll--Four-person Office.
Reconciliations
Improve Payroll Review.
Check W-2 Forms and Control Their Mailing.
Reconcile Pension Information More Often.
Reviews and Approvals
Include Authorization of the Current Wage Rate in Personnel Files.
Include Authorization of the Current Wage Rate in the Payroll File.
Approve Overtime Hours.
Have Employees Sign and Submit Time Cards to Managers.
Have the Controller Sign the Payroll Register.
Perform Surprise Payroll Pay-outs.
Improve Payroll Review.
Review Payroll Records for Unusual Matters.
Review Payroll Checks for Unusual Items.
Obtain Current W-4 Forms.
Complete Job Applications.
Review Wage Rates for Approval.
Identify, Account for, and Charge Employees for Personal Expenses.
Policies and Procedures
Consider Risks in Operations of Third-party Service Providers.
Adopt a Written Policy Defining Full-time and Leased Employees.
Maintain Current and Complete Personnel Files.
Develop and Distribute an Employee Manual.
Review Job Descriptions.
Establish a Vacation Policy.
Establish a Written Personnel Policy Relating to Vacation and Sick Days.
Limit the Carryover of Unused Vacations.
411 TAXES
Controls over Recording
Maintain Effective Controls over Income Taxes.
Perform Detailed Review of Calculation of Tax Accrual, Including Deferred Taxes.
Maintain Effective Controls over Accounting for Income Taxes.
Address Oversight of Outsourcing Tax Provision Calculation.
Consider the Tax Ramifications of Leases and Treat Capitalized Leases the Same for Book and Tax Purposes.
Document Book and Tax Differences.
Reconciliations
Maintain Effective Controls over Income Taxes.
Maintain Effective Controls over Accounting for Income Taxes.
Reviews and Approvals
Maintain Effective Controls over Income Taxes.
Improve Oversight and Review over Income Taxes.
Maintain Effective Controls over Accounting for Income Taxes.
Policies and Procedures
Withhold Income Taxes on Bonuses.
Document in the Corporate Minutes Matters That Could Have Tax Consequences.
412 EQUITY
Controls over Recording
Prenumber Stock Certificates.
Cancel Stock Certificates.
Segregation of Duties
Segregate Equity Transactions Duties.
Reviews and Approvals
Authorize and Approve all Shares and Dividends.
Approve Additional Purchases of Capital Stock.
Policies and Procedures
Hold Annual Stockholders' Meetings.
413 CONTROL ENVIRONMENT
Communication and Enforcement of Integrity and Ethical Values
Have Employees Sign and Submit Time Cards to Managers.
Take Action to Enforce Integrity in the Workplace.
Establish and Communicate a Harassment Policy.
Provide Orientation Meetings for New Employees.
Monitor Aggressive Sales Personnel.
Survey Employees for Understanding of Human Resource Policies and Practices.
Review, Upgrade, and Communicate the Code of Conduct.
Use a Company Newsletter to Reinforce Integrity and Ethics.
Establish a Fraud Hotline.
Survey for External Perception of Company Ethics and Integrity.
Obtain Employee Fidelity Bonds.
Establish a Code of Conduct and Conflict-of-interests Policy.
Provide Employee Training on the Code of Conduct.
Emphasize Compliance with Code of Ethics and Disbursement Controls.
Emphasize Control Environment.
Commitment to Competence
Test Applicants for Bookkeeping Jobs before Hiring.
Consider Whether Applicant for Bookkeeping Position Is a Certified Professional Bookkeeper.
Realign Roles with Competencies.
Train and Cross-train Employees.
Foster a Commitment to Competence through Training.
Provide Continuing Education for the Bookkeeper.
Provide Training for Information Technology Personnel and Users.
Cost-effective Training.
Hire a Controller--Job Requirements.
Implementing Complex Technical Guidance with Limited Finance Personnel.
Upgrade the Qualifications for and Training of the Internal Audit Department.
Improve Control Environment.
Improve Technical Accounting Function.
Minimize Opportunity for Management Override of Controls.
Participation of Those Charged with Governance
Document Board Approval of Bonus Policy and Payment.
Ensure Board Approvals for Certain Transactions.
Review Executive Perquisites and Establish a Compensation Committee.
Document in the Corporate Minutes Matters That Could Have Tax Consequences.
Have the Board of Directors Approve Significant Company Actions.
Prepare Minutes of Partners' Meetings.
Prepare Minutes of Board Meetings.
Approve and Sign the Minutes of Board Meetings.
Include All Significant Matters in Minutes of Board Meetings.
Document in the Corporate Minutes Matters That Could Have Tax Consequences.
Hold Annual Stockholders' Meetings.
Improve the Effectiveness of the Board of Directors.
Resolution of Internal Control Deficiencies and Other Issues.
Audit Committee Consideration of Management Override of Controls.
Management's Philosophy and Operating Style
Hold Weekly Management Meetings.
Limit Management Override of Controls.
Minimize Opportunity for Management Override of Controls.
Develop Policies and Procedures for Regulatory Compliance.
Improve Documentation of Internal Control Components.
Organizational Structure
Improve Control Environment.
Establish a Centralized Personnel Department.
Reorganize Structure to Assist the Owner.
Review the Organization of the Administrative Department.
Assignment of Authority and Responsibility
Realign Roles with Competencies.
Train and Cross-train Employees.
Review Administrative Staff Duties.
Review Personnel Responsibilities.
Develop an Organization Chart and Job Descriptions.
Reorganize Structure to Assist the Owner.
Plan for Future Personnel Requirements.
Improve Organization of, and Communication among, the Management Team.
Document the Company's Organization and Procedures.
Develop an Organization Chart.
Reorganize the Accounting Staff.
Hire an Accounting Manager.
Hire a Full-time or Assistant Bookkeeper.
Hire an Assistant Controller.
Increase the Controller's Authority.
Audit Committee Charter Is Inadequate.
Internal Audit Should Not Be Involved in Designing Internal Controls.
Internal Audit Should Not Be Part of the Control Process.
Improve Contract Administration Process.
Improve Technical Accounting Function.
Human Resource Policies and Practices
Substitute Human Resources Role with a Task Force.
Submitting Time Cards to Managers.
Promptly Notify Payroll Department of Changes in Pay Rates or Personnel.
Conduct Exit Interviews with Departing Employees.
Complete Job Applications.
Test Applicants for Bookkeeping Jobs before Hiring.
Check Job Applicants' References.
Perform Credit Checks on New Employees.
Perform Background Checks of Potential New Employees.
Consider Whether Applicant for Bookkeeping Position Is a Certified Professional Bookkeeper.
Maintain Current and Complete Personnel Files.
Include Employee Signatures in Their Personnel Files.
Establish a Program for Evaluating Employee Performance.
Establish and Communicate a Harassment Policy.
Survey Employees for Understanding of Human Resource Policies and Practices.
Provide Orientation Meetings for New Employees.
Conduct Exit Interviews with Departing Employees.
414 RISK ASSESSMENT
Financial Reporting Objectives
Design Internal Control over the Preparation of Financial Statements.
Management of Financial Reporting Risks
Document Significant Accounting Processes.
Comprehensive Internal Audit Strategy.
Consideration of Fraud Risks
Perform Surprise Payroll Pay-outs.
Perform a Fraud Risk Assessment.
Perform Fraud Risk Assessment.
415 INFORMATION AND COMMUNICATION
Financial Reporting Process
Create Controls over Invalid Journal Entries.
Prepare and Review Account Reconciliations.
Determine Allowance for Uncollectible Accounts Objectively.
Represent Contingencies Accurately.
Record Nonroutine and Nonsystematic Transactions.
Record the Sale of Long-lived Assets.
Reflect the Restatement of Previously Issued Financial Statements.
Design Internal Control over the Preparation of Financial Statements.
Improve Financial Statement Close Process.
Improve Contract Administration Process.
Address Inventory Cost Accounting Process.
Establish Inventory Count Procedures.
Improve Accounting for Variable Rate Demand Notes.
Determine the Impairment of Long-lived Assets.
Address Preparation of Financial Statements.
Implement Management Oversight and Journal Entry Review.
Perform Monthly Review of Fort Worth Accounting.
Address Accounting Limitations.
Improve Internal Control over Financial Reporting.
Release of Temporarily Restricted Net Assets.
Address Unusual Technical Issue.
Address Audit Adjustments.
Improve System of Internal Control over Financial Systems.
Analyze All Contracts and Grants.
Prepare Financial Statements in Accordance with GAAP.
Address Financial Reporting Internal Control System.
Provide Oversight of the Financial Reporting Process.
Provide Oversight of the Preparation of Financial Statements.
Establish Control over the Financial Reporting Process.
Improve Control over Disclosures.
Identify Material Misstatements through the Company's Internal Control.
Prevent or Detect Material Misstatements as Part of the Company's Internal Control Process.
Prevent or Detect Material Misstatements through the Company's Internal Control System.
Address Oversight of Financial Statement Conversion from Cash to Accrual Basis.
Address Lack of Control over Investments.
Improve Internal Controls for the Financial Reporting Process.
Operating Lease--Rent Holiday Is Accounted for Improperly.
Review Executive Perquisites and Establish a Compensation Committee.
Improve Financial Records.
Eliminate Unnecessary General Ledger Accounts.
Expand the Chart of Accounts.
Develop a Year-end Closing Schedule.
Develop a Checklist of Year-end Closing Procedures.
Evaluate the Existing Accounting System--Allow for Double-entry Accounting.
Evaluate the Existing Accounting System.
Shift from Spreadsheets to an Integrated Business Software System.
Integrate Software for Various Locations.
Use the QuickBooks Close Feature Monthly.
Update, Communicate, and Monitor the Records Retention Policy.
Adopt a Records Retention Policy.
Establish Policy and Procedures for Archiving Email.
Improve Storage Safety of Accounting Records.
Adopt a Records Storage and Retrieval System.
Produce and Retain Certain Accounting Records.
File Accounting Records in an Orderly Manner.
Maintain an Insurance Register.
Maintain an Insurance Register to Control Changes in Insurance Policies.
Improve Information Technology Documentation.
Document Systems as They Are Developed.
Develop an Information Technology Standards Manual.
Maintain Only One Set of Books.
Document Significant Accounting Processes.
Improve Monthly Closing Procedures.
Approve Journal Entries.
Prepare More Complete Interim Financial Statements.
Prepare More Accurate Quarterly Financial Statements.
Prepare a Capital Expenditures Budget for Board Approval.
Prepare a Capital Expenditures Budget for Board Approval--Company Expansion.
Reconcile Accounts to Supporting Documents.
Reconcile General Ledger Accounts to Subsidiary Ledgers.
Document the Preparation of Reconciliations.
Increase Oversight of Subsidiaries' Accounting.
Operating Lease--Cash Flows Statement Presentation of Landlord Incentive Allowance.
Recognize Implicit Variable Interest.
Internal Control Information
Improve Documentation of Internal Control Components.
Improve Organization of, and Communication among, the Management Team.
Make Use of QuickBooks Business Budgeting Features.
Make Greater Use of QuickBooks Financial Reports Features.
Improve Information Technology Documentation.
Document Systems as They Are Developed.
Develop an Information Technology Standards Manual.
Develop an Information Technology Standards, Policies, and Procedures Manual.
Establish Controls over Vital Information on Personal Computers.
Internal Communication
Develop and Distribute an Employee Manual.
Review Job Descriptions.
Survey Employees for Understanding of Human Resource Policies and Practices.
Review Personnel Responsibilities.
Develop an Organization Chart and Job Descriptions.
Plan for Future Personnel Requirements.
Document the Company's Organization and Procedures.
Develop an Organization Chart and a Policies and Procedures Manual.
Develop an Organization Chart.
Develop a Procedures Manual for Administrative Functions.
Develop a Policies and Procedures Manual.
Reorganize the Accounting Staff.
Develop an Accounting Procedures Manual.
Develop an Accounting Procedures Manual.
Use Templates to Document Policies.
Update the Accounting Procedures Manual and Communicate the Changes.
Establish General Criteria to Safeguard Assets.
Standardize Financial Reporting among Component Entities.
Communicate and Coordinate with Satellite Location.
Improve Communications between Operations and Accounting and Finance Personnel.
Communicate and Coordinate Customer Arrangements.
Communicate Accounting Policies and Procedures to Employees.
Post the Employee Handbook on the Company's Intranet Site.
External Communication
Facilitate Communications with Customers.
Survey for External Perception of Company Ethics and Integrity.
Hold Annual Stockholders' Meetings.
Website Does Not Include a Disclaimer.
Prepare More Complete Interim Financial Statements.
Prepare More Accurate Quarterly Financial Statements.
Improve Retirement Plan Reporting.
416 MONITORING
Ongoing and Separate Evaluations
Perform Surprise Payroll Pay-outs.
Improve Payroll Review.
Review Payroll Records for Unusual Matters.
Review Payroll Checks for Unusual Items.
Review Wage Rates for Approval.
Monitor and Report All Self-insurance Costs.
Hire an Assistant Controller.
Hire a Controller--Responsibilities.
Hire a Controller.
Hire a Controller--Job Requirements.
Increase the Controller's Authority.
Perform Management Review of Information Technology Specialist Due to Lack of Segregation of Duties.
Make Use of QuickBooks Business Budgeting Features.
Make Greater Use of QuickBooks Financial Reports Features.
Update, Communicate, and Monitor the Records Retention Policy.
Hire an Information Technology Auditor.
Prepare a Budget.
Increase Frequency in Review of Budget Variations.
Establish an Internal Audit Function--to Ensure Consistent Reporting.
Establish an Internal Audit Function.
Establish an Internal Audit Function.
Comprehensive Internal Audit Strategy.
Internal Audit Function Should Revert to In-house.
Internal Audit Should Not Be Involved in Designing Internal Controls.
Internal Audit Should Not Be Part of the Control Process.
Issue Reports on Internal Audits.
Recognize Fraud on the Part of Senior Management.
Improve Financial Statement Close Process.
Improve Internal Control Monitoring Activities.
Reporting Deficiencies
Timely Follow-up of Audit Reports.
Address Prior Year Significant Deficiency.
Readdress Prior Year's Significant Deficiencies.
Encourage Employees to Communicate Control Deficiencies.
417 COMPUTER CONTROLS
Improve Design of IT General Controls
Improve Design of IT General Controls
Segregate Duties at the Application Control Level
Design IT General Controls
Maintain Effective IT General Controls
Improve Design of IT General and Application Controls for Financial Reporting
Implement Change Management Control
Implement Logical Access Controls
Establish and Document Procedures Relating to Employee Terminations
Provide Training for Information Technology Personnel and Users
Perform Management Review of Information Technology Specialist Due to Lack of Segregation of Duties
Upgrade Outdated, Unsupported Software and Prohibit Use of Unauthorized Software to Improve Security
Evaluate the Existing Accounting System
Shift from Spreadsheets to an Integrated Business Software System
Integrate Software for Various Locations
Use the QuickBooks Close Feature Monthly
Make Use of QuickBooks Business Budgeting Features
Limit Access to Sensitive Computer Reports
Establish Policy and Procedures for Archiving Email
Produce and Retain Certain Accounting Records
Restrict Access of Multiple QuickBooks Users to Data Files
Restrict Access to Prior-period QuickBooks Data
Backup and Safely Store Computer Files
Store Backup Computer Files Off Site
Other Computer Backup Considerations
Limit Access to Computers
Periodically Change Computer Passwords
Improve the Physical Security of the Computer Center
Improve Information Technology Documentation
Document Systems as They Are Developed
Develop an Information Technology Standards Manual
Develop an Information Technology Standards, Policies, and Procedures Manual
Establish Controls over Vital Information on Personal Computers
Segregate Information Technology Duties
Establish Formal Controls over Program Development and Changes
Prohibit Information Technology Personnel from Initiating or Authorizing Transactions
Prohibit Information Technology Personnel from Initiating Changes
Document Master File Changes
Prohibit Information Technology Personnel from Making Error Corrections
Separate Computer Operations and Programming
Hire an Information Technology Auditor
Improve the Physical Security of the Computer Center--Considerations
Limit Access to the Information Technology Center during Nonbusiness Hours
Limit Access to Computers
Limit Access to Off-site Storage
Develop Procedures Concerning Computer Passwords
Improve Password Security
Periodically Change Computer Passwords
Limit Access to Program and Data Files
Limit Access to Network Data Files
Improve Information Technology Security and Access
Store Computer Backup Files Off Site
Upgrade Outdated, Unsupported Software and Prohibit Use of Unauthorized Software to Improve Security
Develop an Information Technology Disaster Recovery Plan--Areas to Address
Develop an Information Technology Disaster Recovery Plan--Additional Considerations
Develop an Information Technology Disaster Recovery Plan and Test Periodically
Develop an Information Technology Disaster Recovery Plan--to Ensure Continued Operation
Periodically Review, Update, and Test the Disaster Recovery Plan
APPENDIX 4A: Control Deficiency Comment and Management Point Development Worksheet
Continuing Professional Education
CPE & Training Solutions
INDEX
CPE related to these PPC Guides is now available!
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PPC offers print-based self-study in these topics:
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INTRODUCTORY MATERIAL
PREFACE
