Question

11-28 (Objectives 11-3, 11-4) You are doing the audit of Phelps College, a private school with approximately 2,500 students. With your firm’s consultation, they have instituted an IT system that separates the responsibilities of the computer operator, systems analyst, librarian, programmer, and data control group by having a different person do each function. Now, a budget reduction is necessary and one of the five people must be laid off. You are requested to give the college advice as to how the five functions could be done with reduced personnel and minimal negative effects on internal control. The amount of time the functions take is not relevant because all five people also do nonaccounting functions.

Required

a. Divide the five functions among four people in such a way as to maintain the best possible control system.

b. Assume that economic times become worse for Phelps College and it must terminate employment of another person. Divide the five functions among three people in such a way as to maintain the best possible internal control. Again, the amount of time each function takes should not be a consideration in your decision.

c. Assume that economic times become so severe for Phelps College that only two people can be employed to do IT functions. Divide the five functions between two people in such a way as to maintain the best possible control system.

d. If the five functions were done by one person, will internal controls be so inadequate that an audit cannot be done? Discuss.

Answer 1

ANSWER

As per the given question,

(a), (b), (c) The distribution can be done in the following manner P 2 Pl P3 P4 Systems analyst Computer operatorLbraianDala control Proprammer Systems analyst Computer operatrLbrarian a ь NIA Data control Programmer Systems analyst Computer operator Programmer N/A NIA C Librarian Data control *Note: here, it is presumed that the procedures of data control will serve as the check on the computer operator and would allocate the work in both the individuals

(d) If all the five functions were performed by one individual, then internal control would be weakened. Although the company might not be auditable, typically for two reasons: Firstly there might be control outside the function of IT which would accomplish good control. For example the users might reconcile the output and input data on a regular basis. Secondly the auditor isn't required to rely on the internal control. He might take the substantive approach for the audit assuming the evidence is available for supporting the balances and transactions

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