Module 8 Assignments – Audit Findings 3

Problem 11-28

Cohen and Single, LLP, are auditing the ICFR and financial statements of

Copley and Sons, a public company that sells supplies to government agencies. Copley and Sons has a 12/31 fiscal year end. Cohen and Single conclude that the financial statements for the current and prior year are fairly stated. However, they found a material weakness in ICFR. There is a lack of separation of duties because the companys’ CFO has the ability to change passwords on employee’s computer identification numbers and has unlimited access to a computer terminal through which any journal entry can be entered without approval and review. Management’s evaluation of ICFR is also as of 12/31, and management’s report states that ICFR is not effective due to the computer security problem causing the lack of separation of duties. Draft Cohen and Single’s combined audit report with opinions on the financial statements and ICFR as described.


Problem 11-29

Refer to Problem 11-28. Draft a management representations letter for Copley

and Sons to submit to Cohen and Single LLP. The management representations letter should address all the points needed for both the financial statement and ICFR audits.


Problem 16-22

Gene is a new staff-level auditor on the audit of CalPower, a publicly traded

energy and utility company. On his first day, his senior informs him that the engagement team is scheduled to have lunch with the internal auditor to discuss ways to improve this year’s audit. While Gene has heard a lot about internal auditing in school and has some friends who recently began working as internal auditors, he is unfamiliar with exactly what internal auditors do and how internal and external auditors can work together to improve the audit process. Gene decides to take a look at last, year’s internal audit report prepared by CalPower’s internal auditors. He notices that the report includes a sentence that reads, “CalPower’s Internal Audit group maintains a high level of independence from management.” Because Gene is intimately familiar with the extensive independence requirements of his own firm, he cannot figure out how CalPower’s internal audit group can possibly assert their own independence.

What is meant by independence from management for internal auditors?