Outline

Yong Fashion(YF),

Your section of the YF case deals with their auditors understanding and documentation of activity level processes and controls. In particular, your presentation will address a specific transaction class pertaining to sales to wholesale customers. The transaction you will be responsible for is the “receipt of merchandise requests from wholesale customers” of Young Fashions.

Your specific section begins with a workpaper (auditors form ) that states: The following documents the procedures performed, information gathered, and conclusions reached relating to walkthroughs of major transactions. In this context, the auditor means a major transaction is an activity transaction type that is significant to the understanding of internal control for the purpose of assessing the risk of material misstatement. As you read through the section that pertains to your assigned transaction type, you see where inquiry is occurring- persons interviewed; critical processing steps are indentified ( three of them) as are related controls and three key controls for the activity are indentified and linked with the assertion(s) they impact: segregation of duties, safeguarding controls and asset accountability. And finally, what follows and concludes the transaction class is the walkthrough or corroborative procedure necessary to confirm the results of inquiry.

Your presentation format should attempt to replicate the style/format used by YF auditors. I expect you will be able to economize where descriptions occur and reduce the verbiage to the point where the concept/conclusion is still understandable.

Recall, that a client’s financial reporting risk (and therefore its controls) may relate to specific classes of transactions, account balances, and disclosures, or more pervasively to the financial statements taken as a whole. Understanding internal control means evaluating internal control design and determining whether the controls have been implemented. Refer back to SAS 109, AU314, and para 89 and 90 for specific guidance that will help you understand your section and which can refer to when you address learning objectives. A further note: generally, the auditor gains an understanding of controls and relates them to relevant assertions in the context of processes and systems in which they exist. This is why in YF you see the auditor documenting the process steps involved and then relating the process to the control over the process that exists or should exist.