Biltrite Corp.

23490 words 94 pages
Solutions for the Biltrite Bicycles Inc. Case

Module I - Assessment of Inherent Risk..............................................................3 Module II – PRELIMINARY ASSESSMENT OF CONTROL RISK BASED ON AN UNDERSTANDING OF THE DESIGN OF CONTROLS ................17 Module III - Control Testing: Sales Processing................................................29 Module IV - PPS Sampling: Factory Equipment Additions............................31 Module V - Accounts Receivable Aging Analysis..............................................35 Module VI - Sales and Purchases Cutoff Tests..................................................42 Module VII - Search for Unrecorded Liabilities...............................................47 Module
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Based on the chart and the case description, the following strengths and weaknesses should be identified: STRENGTHS: • The structure shows adequate separation within the CBIS function, i.e., systems analysis and programming are separate from data processing and control (implications for control risk assessment) • Separation is also maintained between the accounting and finance functions (implications for control risk assessment). • The internal audit staff is competent (but see weaknesses below, implications for control risk assessment). • The corporate controller’s former affiliation with the accounting firm enables him to better assist the audit team in completing various tasks (but see weaknesses below). WEAKNESSES: • Although competent, the internal audit staff reports to the corporate controller. This impairs audit independence within the organization and places too much emphasis on financial auditing relative to operational auditing. • Having once been employed by the auditing firm, the corporate controller is familiar with the firm’s auditing strategies and procedures. This knowledge could assist in concealing fraud from the audit team. • Given a manufacturing facility of this magnitude, a separate “plant assets” section within the accounting function appears to be warranted. • No mention is made of a tax person or a tax department within the company. • Given the changes in the company, there should be some periodic review of the

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