EasyClean2006 - Easy Clean Co Evaluation of Internal...

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Easy Clean, Co.: Evaluation of Internal Control Environment 1 LEARNING OBJECTIVES Evaluate a new audit client's control environment. Provide an initial evaluation of certain components of the client's control environment Appreciate the judgment involved in evaluating the overall internal control environment based on interview data Provide support for your internal control assessments Ted is a manager in the Business Advisory and Assurance Services division of a national public accounting firm. He has been given the job of managing the audit of Easy Clean, Co., which provides industrial and domestic carpet steam-cleaning services. Easy Clean has never been audited. Thus, Ted does not have any prior-year working papers to review. Ted recently conducted a preliminary interview with Doug Dosio, who along with his brother, Phil, owns Easy Clean. Ted's objective for the interview was to establish an understanding of the control environment. To prepare for his interview, Ted reviewed professional auditing standards. Those auditing standards (AU 319) indicate that the control environment "sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure." The standards state that control environment factors include the following: 1. Integrity and ethical values 2. Commitment to competence 3. Board of directors or audit committee participation 4. Management's philosophy and operating style 5. Organizational structure 6. Assignment of authority and responsibility 7. Human resource policies and practices Based on the interview dialogue provided below, you will be asked to evaluate the seven components of the client's control environment noted previously in order for you to 1 Copyright © 2005, This case was prepared by Frank A. Buckless, Ph.D. and Mark S. Beasley, Ph.D., Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. and significantly modified as a basis for class discussion by J. Christopher Westland. It is not intended to illustrate either effective or ineffective handling of an administrative situation.
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make an evaluation of the overall internal control environment. Before reading the interview information, please spend a couple of minutes reviewing the assessments you will make. Based on the information provided in the interview that follows, you are to evaluate Easy Clean's overall control environment. To assist you in making this overall assessment, you will find detailed descriptions of factors noted below that may weaken or strengthen each of the seven components comprising the overall control environment. INTERVIEW WITH CLIENT Ted: Doug, can you give me a little information on the background of Easy Clean? Doug: Easy Clean provides both a domestic and industrial carpet steam-cleaning service
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This note was uploaded on 01/23/2012 for the course BUSI 4900 taught by Professor B.c. during the Fall '11 term at Carleton CA.

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EasyClean2006 - Easy Clean Co Evaluation of Internal...

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