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EarthWear Hands-on Mini-case Chapter 6 - Control Environment and Internal Control Documentation AUDITING & ASSURANCE SERVICES 11e © The McGraw-Hill Companies, Inc., 2019 In this mini-case you will complete questionnaires for evaluating the corporate governance and internal control environment of EarthWear Clothiers, Inc. INSTRUCTIONS: 1 Double-click on the following icons (documents will open in Microsoft Word) and read the memos on Corporate Governance and Control Environment Issues and Internal Control Components. Refer back to these memos as you answer the questionnaires. Corporate Governance Internal Control Environment 2 The worksheets titled "Control Environ. Questionnaire" and "Internal Control Questionnaires" contain partially completed copies of the questionnaires you are to finish. Scan through the questions that have already been completed. 3 Using the information outlined in the memos above and answers to other questions in the questionnaires, complete questions 1, 7, 12, 17, 19, and 21 of the Control Environment Questionnaire and questions 1, 3, 9, 12, 14, and 15 of the Internal Control Questionnaire. Fields you are to complete on the questionnaire are colored yellow. The color will disappear when the field is completed. 4 When the questionnaires are completed, enter your initials in the yellow boxes with title "Initial Here" . 5 Please input your answers into Connect or print a copy of the Print Out to submit unless your instructor requests an electronic submission. The Print Out is formatted to fit on one page. CONNECT INPUT Input your responses from the Print Out into the corresponding questions in Connect. Control Environment Questionnaire Client: EarthWear Clothiers Balance Sheet Date: 12/31/2019 Initial Here Reviewed by: _____ Date: _______ PARTICIPATION OF THE BOARD OF DIRECTORS AND AUDIT COMMITTEE An entity’s control consciousness is influenced significantly by the entity’s board of directors or audit committee. Attributes include the board or audit committee’s independence from management, the experience and stature of its members, the extent of its involvement and scrutiny of activities, the appropriateness of its actions, the degree to which difficult questions are raised and pursued with management, and its interaction with internal and external auditors. Yes, No, N/A Question 1 2 3 4 5 Are there regular meetings of the board of directors (or comparable bodies) to set Respond policies and objectives, review the entity’s performance, and take appropriate action, Here and are minutes of such meetings prepared and signed on a timely basis? Does an audit committee exist? Yes Does the audit committee adequately assist the board in maintaining a direct line of communication with the entity’s external and internal auditors? Does the audit committee have adequate resources and authority to discharge its responsibilities? Yes Is this evidenced by Yes · The appointment of qualified members? · Provide Any Additional Comments Here The audit committee meets with the external and internal auditors on a quarterly basis. Yes Regular meetings? · Comments The audit committee also meets quarterly, just prior to the quarterly board of directors meeting. Minutes are maintained of each meeting. The audit committee consists only of individuals who are not part of management. Minutes of meetings? MANAGEMENT’S PHILOSOPHY AND OPERATING STYLE Management’s philosophy and operating style significantly influence the control environment — particularly when management is dominated by one or a few individuals.