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1,000 words required.oT Tre TT TTT FT Te Tree sm me nn mmm mmm. ee mam remem meme mms = 0 mm mem meme mom mmm mm @ Lo 7-4, @ 7-6, @ 7-10 7-35 Following are examples of control deficiencies that may represent significant deficiencies or material weaknesses. For each control deficiency, indicate whether it is a significant deficiency or material weakness. Justify your decision. a. The entity uses a standard sales contract for most transactions. Individual sales transactions are not material to the entity. Sales personnel are allowed to modify sales contract terms. The entity's accounting function reviews significant or unusual modifications to the sales contract terms but does not review changes in the standard shipping terms. The changes in the standard shipping terms could require a delay in the timing of revenue recognition. Management reviews gross margins on a monthly basis and investigates any significant or unusual relationships. In addition, management reviews the reasonableness of inventory levels at the end of each accounting period. The entity has experienced limited situations in which revenue has been inappropriately recorded in advance of shipment, but amounts have not been material. b. The entity has a standard sales contract, but sales personnel frequently modify the terms of the contract. The nature of the modifications can affect the timing and amount of revenue recognized. Individual sales transactions are frequently material to the entity, and the gross margin can vary significantly for each transaction. The entity does not have procedures in place for the accounting function to regularly review modifications to sales contract terms. Although management reviews gross margins on a monthly basis, the significant differences in gross margins on individual transactions make it difficult for management to identify potential misstatements. Improper revenue recognition has occurred, and the amounts have been material. c. The entity has a standard sales contract, but sales personnel frequently modify the terms of the contract. Sales personnel frequently grant unauthorized and unrecorded sales discounts to customers without the knowledge of the accounting department. These amounts are deducted by customers in paying their invoices and are recorded as outstanding balances on the accounts receivable-aging. Although these amounts are individually insignificant, when added up they are material and have occurred regularly over the past few years.

Mayuri · Accepted Answer

Steps to choose to know which control deficiency are it using the following points.
1. Identification of the deficiency
2. Considerations over the magnitude and likelihood of a potential misstatement
3. Identification of compensating controls
4. Assessment of deficiencies for potential aggregation
5. Conclusions on the severity of the deficiency
6. Documentation of conclusions and reporting considerations
Material weakness refers to the deficiency or a number of weaknesses such that they have an impact on the company internal control resulting in false statement in the company financial reports which makes it ineffective and unreliable for accessing about the company health.
 Significant Deficiency refers to the weakness or a number of weakness such that they does not have an significant impact on the company financial statement but may become a big problem if left unattended in the future. This is like an early warning that can be fixed if some resources and work is done properly or may result in many of the reason for a company.
Question: The entity uses a standard sales contract for most transactions. Individual sales transactions are not material to the entity. Sales personnel are allowed to modify sales contract terms. The entity's accounting function reviews significant or unusual modifications to the sales contract terms but does not review changes in the standard shipping terms. The changes in the standard shipping terms could require a delay in the timing of revenue recognition. Management reviews gross margins on a monthly basis and investigates any significant or unusual relationships. In addition, management reviews the reasonableness of inventory levels at the end of each accounting period. The entity has experienced limited situations in which revenue has been inappropriately recorded in advance of shipment, but amounts have not been material
Based on the facts about the above question this is a significant deficiency due to the following reason
1. It is related to financial statement assertion which means that the company has a guaranty that the financial statement of there is correct but problems can be found although not often but this alone is enough.(box1 is satisfied)
2.

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