ASSIGNMENT
Parts for Wheels, Inc., has historically sold auto parts directly to consumers through its retail stores. Due to competitive pressure, Parts for Wheels installed an Internet-based sales system that allows customers to place orders through the company’s website. The company hired an outside website design consultant to create the sales system because the company’s IT personnel lack the necessary experience. Customers use the link to the inventory parts listing on the website to view product descriptions and prices. The inventory parts listing is updated weekly. To get the system online quickly, management decided not to link the order system to the sales and inventory accounting systems. Customers submit orders for products through the online system and provide credit card information for payment. Each day, accounting department clerks print submitted orders from the online system. After credit authorization is verified with the credit card agency, the accounting department enters the sale into the sales journal. The accounting department then sends a copy of the order to warehouse personnel, who process the shipment. The inventory system is updated based on bills of lading information forwarded to accounting after shipment.
Customers may return parts for full refund if returned within 30 days of submitting the order online. The company agrees to refund shipping costs incurred by the customer for returned goods.
a. Describe deficiencies in Parts for Wheels’ online sales system that may lead to material misstatements in the financial statements.
b. Identify changes in manual procedures that could be made to minimize risks, with- out having to reprogram the current online system.
c. What transaction-related and balance-related audit objectives would the auditors be most concerned about based on the process currently in place?
d. Explain how auditors might use generalized audit software to address the concerns identified in part c.
Based on a cost-benefit analysis, management at First Community Bank decided to contract with Technology Solutions, a local data center operator, to host all of the bank’s financial reporting applications. To avoid the significant costs of devel- oping and maintaining its own data center, First Community contracts with Technology
Solutions to provide IT server access in a highly secure, environmentally controlled data center facility owned by Technology Solutions. Similar to First Community, other businesses also contract with Technology Solutions to host applications at the same data center.
The bank is directly linked through highly secure telecommunication lines to the data center, which allows bank personnel to transmit data to and from the data center as if the data center was owned by First Community. For a monthly fee, Technology Solutions supports the server hardware in an environment with numerous backup controls in the event power is lost or other hardware failures occur. Bank personnel are responsible for selecting and maintaining all application software loaded on Technology
Solutions servers, and selected bank personnel have access to those servers located at the
Technology Solutions data center. Bank personnel enter all data, run applications hosted
at Technology Solutions, and retrieve reports summarizing the processing of all bank
transactions.
a. What risks might First Community assume with this approach to IT system support?
b. How does the use of Technology Solutions impact First Community’s internal
controls?
c. What impact, if any, does reliance on Technology Solutions as the data center pro-
vider have on the audit of First Community’s financial statements?
