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Highest Level of Deficiency Case

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Highest Level of Deficiency Case ACC 410 Auditing August 24

For each of the following independent cases, state the highest level of deficiency that you believe the circumstances represent – a control deficiency, a significant deficiency, or a material weakness. Explain your decision in each case.
Case 1
The company processes a significant number of routine intercompany transactions. Individual intercompany transactions are not material and primarily relate to balance sheet activity--- for example, cash transfers between business units to finance normal operations. A formal management policy requires monthly reconciliation of intercompany accounts and confirmation of balances between business units. However there is not a process in place to ensure performance of these procedures. As a result detailed reconciliation of intercompany accounts are not performed on a timely basis. Management does perform monthly procedures to investigate selected large-dollar intercompany account differences. In addition management prepares a detailed monthly variance analysis of operating expenses to assess their reasonableness.

I believe that this case represents a significant deficiency due to the fact that reconciliation is not performed on time each month. Any misstatement that might occur from this deficiency is more than likely to be an immaterial amount, however management should still be notified.

Case 2
During its assessment of internal control over financial reporting, management identified the following differences. Based on the context in which the deficiencies occur, management and the auditors agree that these deficiencies individually represent significant deficiencies: * Inadequate segregation of duties over certain...

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