Question 1 (19 marks)
The Carmichael Museum operates a not-for-profit museum for the benefit of the community. During the hours when the museum is open to the public, a clerk is positioned at the main entrance to sell $5.00 admission tickets. The two-part tickets are pre-printed and pre-numbered. Upon payment of the admission fee, the patron is allowed to pass through a turnstile that is equipped with a counter.
There is a separate turnstile (also equipped with a counter) set up for members of the museum that is operational only when the bar-coded membership card is scanned. Members of the museum are permitted to enter free of charge by scanning their membership card. Based on frequency of usage, a members list is prepared for use by the museum as a source of target lists for special campaigns and volunteering opportunities.
Each member is asked to prepare a contribution pledge card on an annual basis (at the beginning of the year) to keep their membership active. The pledge is regarded as a commitment by the member to contribute the amount pledged by December of that year. Contributions are sent by members in the mail or in a drop box located on-site. Upon request, based on the amounts shown on the pledge cards, the treasurer prepares tax receipts for members to support the contribution amounts.
At the end of the day, the clerk counts the cash received and prepares a two-part daily receipts reconciliation that reconciles the amount received to the number of tickets sold and the turnstile counter. All discrepancies are explained by the clerk and the form is signed and dated. A common discrepancy would occur if a ticket were voided. For example, on one day there were 50 tickets used but cash receipts for only 49 tickets. The clerk attached the voided ticket to the reconciliation as an explanation for the discrepancy. Any contributions received for pledges are also recorded at this time. The original is placed with the cash in an unlocked filing cabinet in the office overnight, while part two is sent to the treasurer s home.
Every morning, the treasurer an unpaid volunteer and board member visits the museum, obtains the cash receipts from the cabinet, counts the cash received and compares it to his copies of the receipt forms. He then compares the number of tickets sold to ticket batch and to the turnstile counter. He prepares the bank deposit daily. The clerk is responsible for maintaining the cash receipts journal, which is basically a record of the bank deposits.
All disbursements are made by cheques and require the signature of the treasurer and the president. The treasurer is responsible for maintaining the disbursements journal (cheque register). The treasurer also prepares the monthly bank reconciliation. The president reviews the bank reconciliation monthly.
You are a member of the board of directors of the museum, and at a recent meeting several board members expressed interest in learning about the museum s internal control procedures. They asked that you, as a CGA, perform an audit of the museum s financial statements, to identify any strengths and weaknesses in the internal control system and make suggestions to improve controls.
- Provide the board of directors with a brief description of the objective of a financial statement audit. Will a financial statement audit fulfill the board s expectation of gaining an understanding of the strengths and weaknesses of the company s system of internal control? (2 marks)
- Indicate and describe any threats to the auditor s independence. Should the auditor accept this engagement? (2 marks)
- List three weaknesses in the existing system of internal control. For each weakness, state the risk to the museum if the control is not improved, and recommend improvements. Format your answer as follows: (9 marks)
- List three strengths in the existing system of internal control and, for each strength, indicate an audit procedure that could be used to determine if the control is operating effectively. (6 marks)