You have just been assigned to manage the audit for a new large client of your firm, Cheap Music...

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You have just been assigned to manage the audit for a new large client of your firm, Cheap Music Downloads Inc. (CMD). CMD is a subsidiary of a client of your firm that manufactures audio and video equipment for international distribution. CMD has been in operation for two years, when its custom information systems were established. CMD runs a web site that allows customers to order songs using their credit card only. There are tens of thousands of small transactions daily. Once the credit card has been authorized by the credit card processing intermediary, CMD’s web sales system generates a 16 digit sequential code that the customer uses to access the song via the web site. CMD will then record both the sale and the royalty for the song. Quarterly, CMD remits royalties to artists based upon the number of copies of the song that has sold, if the accumulated royalty exceeds $25.00 for that artist. Artist royalties that do not exceed $25.00 will be paid every two years if there has not been a payment during that time. All contracted royalty rates, artist names and song titles are recorded in CMD’s database tables. Some of the content of the database tables is listed below: Sales Transaction Table Song Master Table Royalty Transaction Table Customer name Song code Song code 16 digit sales code Song title 16 digit sales code Transaction date Sales price Transaction date Amount Royalty rate Royalty amount Song code purchased Artist code 2 AP/ADMS 4552 Winter 2013, Hand-in Case # 3: Cheap Music Downloads Inc. Required: (18 marks) A. Describe four computer assisted audit tests (CAATs) that you could run using generalized audit software (such as ACL) in order to audit royalty expenses. For each test, describe the audit assertion associated with the test. (6 marks, 1 mark for CAAT, ½ mark for assertion) No marks for cash disbursements or accounts payable tests. B. Describe three internal controls that should exist over sales or royalty transactions or over the database tables. For each control: (i) State the control (ii) Describe (not just state) the specific transaction-related audit assertion associated with the control (or state the purpose of the control) (iii) Provide an audit test that you could use to test the control (9 marks) [Note that audit tests in column (iii) must be different from Part A to have marks awarded.] C. Use the concept of rotational testing to discuss whether (or not) you would be required to test specific automated controls at CMD this year. (3 marks) No marks for description of standards without application to case fact

Robert · Accepted Answer

A. The computer assisted audit test( CAATs) that will be run using generalized audit 
software (such as ACL) in order to audit royalty expenses are: 
- Test data: This test is used for checking the application of the client i.e. whether the 
applications used by the clients provides the accurate results or not. In this as an 
auditor the hypothetical input related to royalty and the outcome will be provided 
after using, the application of the client will be compared with the original input and 
outcome. It is not necessary to use the correct data always sometimes incorrect data is 
also used. The management assertion is that the application they have used is the best 
in the industry and that provides the accurate results. They use that application in the 
holding company as well and in holding company the auditors have not found any 
inaccuracy.  
- Integrated test facility:

You have just been assigned to manage the audit for a new large client of your firm, Cheap Music Downloads Inc. (CMD). CMD is a subsidiary of a client of your firm that manufactures audio and video...

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