Facts:
During its assessment of the accounts payable department, the internal audit function identified the following observations, which have been agreed to by management;
- Inadequate segregation of duties over certain information system access controls. Potential loss exposure of $45 million.
- 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.
- 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.
Questions:
I. 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.
- And finally, provide your overall conclusions for this audit of accounts payable
II. Describe what should be communicated and to whom, regarding these observations and conclusions by:
- Internal audit, and
- Company management.