Module I - Assessment of Inherent Risk
1. See Figure BR.A-Biltrite’s organizational chart. Based on the chart and the case description, the following strengths and weaknesses should be identified:
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).
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 organizational chart to assess whether changes are needed (having the same organizational structure for over 30 years may not be the most effective or efficient) • There is a focus on centralized decision making with the CEO, Trevor Lawton, having a dominant role on decision making issues. | | | | |Figure BR.A: Biltrite Bicycles Organization Chart | | | | | | | | | | | | | | | | | | | | | | | | | | | | |SALES AND COST OF GOODS SOLD BY PRODUCT LINE | | | |Date: | | | | |For the Years Ended December 31, 2009 and 2008 | | | |Reviewed by: | | | |Analytic Review - Planning | | | |Date: | | | | | | | | COMPARATIVE SCHEDULES OF MANUFACTURING OVERHEAD AND OPERATING EXPENSES |Date: | | For the Years Ended December 31, 2009 and 2008 |Reviewed by: | | | | | |Date: | |...
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