| Course | ACC 421 Auditing and Forensic Accounting |
|---|---|
| Module | Module 3 |
| Paper type | undergraduate tests of controls assignment with attribute sampling |
| Length | About 1,020 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 421 Module 3
Can We Rely on the Nightly Reconciliation? Testing Controls Over Route Cash and Customer Credits
[Student Name]
Southern New Hampshire University
ACC 421: Auditing and Forensic Accounting
Module Three Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Can We Rely on the Nightly Reconciliation? Testing Controls Over Route Cash and Customer Credits
Introduction
At the linen rental company, roughly one customer in seven, typically a diner or bar, pays the driver by cash or check at delivery. Drivers record payments on handheld devices, and each evening a route supervisor compares the handheld collection report with the cash and checks turned in. The planning memo rated the completeness of driver collections high risk, because cash can be pocketed and the shortfall hidden with a credit to the customer's account. This assignment identifies the controls meant to prevent that, tests the most important one and evaluates whether the audit can rely on it (Arens et al., 2020).
Key Controls and How Each Would Be Tested
Table 1. Controls Over Route Cash and Credits
| Control | Risk addressed | Type | Test |
|---|---|---|---|
| Route supervisor reconciles handheld cash report to deposit each night and signs the report | Cash collected but not deposited | Detective | Inspect signed reports; reperform reconciliation for sample of route-days |
| Credits over $250 require sales manager approval in the billing system | Fictitious credits to conceal theft | Preventive | Inspect system settings; test sample of credits for approval |
| Receivables staff, not drivers, mail monthly statements; disputes go to a customer service clerk | Customers unaware of unrecorded payments | Detective | Observe mailing; inquire of customer service about disputes |
The reconciliation is the key control, because it is the one that would catch a missing deposit within a day. The other two are compensating: the credit approval makes it harder to cover a theft, and customer statements give honest customers a chance to notice that a payment was not recorded.
Sampling Plan for the Reconciliation
The population is all route-days in the year on which at least one cash collection occurred, about 7,700. A deviation is defined in advance as any route-day on which the supervisor's signed reconciliation is missing, or the reconciliation shows a difference between the handheld report and the deposit that was not investigated and resolved in writing.
Table 2. Attribute Sampling Parameters
| Parameter | Value | Reason |
|---|---|---|
| Confidence level | 95% | High planned reliance on the control |
| Tolerable deviation rate | 10% | Firm guidance for a key control supporting moderate control risk |
| Expected deviation rate | 1% | Prior experience with the client's other controls |
| Sample size | 46 | Firm's attribute sampling table |
The 46 route-days were selected randomly across all routes and all twelve months, so that every route and season had a chance of selection. For each, the auditor inspected the signed reconciliation and reperformed it by comparing the handheld report with the deposit slip and bank record.
Results and Evaluation
Two deviations were found. On one route-day in July, the reconciliation for Route 14 had no supervisor signature, though the amounts agreed. On one route-day in November, the reconciliation for Route 22 showed the deposit $140 short of the handheld total, and nothing in the file showed that anyone followed up.
The sample deviation rate is 2 of 46, or 4.3 percent, which is below the 10 percent tolerable rate. But the sample rate is not the right comparison, because a different sample might have found more. At 95 percent confidence, the upper deviation limit for two deviations in a sample of 46 is 13.1 percent. Because that exceeds the 10 percent tolerable rate, the auditor cannot conclude with enough confidence that the control operated effectively.
The nature of the second deviation matters as much as the count. A $140 shortage is far below materiality, but an unexplained shortage that nobody pursued is exactly the event the control exists to catch. The deviation shows that the control can fail in a way that would allow theft to continue. Nelson (2009) describes skeptical judgment as showing up in how auditors act on evidence that cuts against their expectations; filing the shortage away as noise would be the opposite. Doyle et al. (2007) found that control weaknesses are concentrated in smaller firms with limited staff, which fits a company whose route supervisors also drive routes when someone calls in sick.
Effect on the Audit Plan
Because the reconciliation cannot be relied on, control risk for completeness of driver collections is assessed at maximum, and substantive procedures are expanded. The auditor will confirm balances with a larger sample of cash-paying customers, including those whose balances are small or zero, since stolen payments would appear as unpaid balances or as credits. The auditor will also examine all credits to cash-paying customers above $100 issued during the last quarter, compare each route's cash collection rate with prior years and with other routes to find outliers, and follow up the Route 22 shortage directly with the driver's customers.
Why Not Simply Test More Reconciliations?
One response to a failed sample is to test a larger sample in the hope of finding fewer deviations. That approach rarely makes sense here. The two deviations already found are real, and a larger sample would only refine the estimate of how often the control fails, not show that it works. More importantly, the audit's concern is whether cash went missing, and substantive procedures answer that question directly. Expanding confirmations and credit testing produces evidence about the balances themselves, which is what the opinion rests on. Testing more reconciliations would cost similar time and leave that question open.
Communication to Management
The combination of an unsigned reconciliation and an uninvestigated shortage is a deficiency in internal control. Whether it is a significant deficiency depends on the results of the expanded substantive work; if those tests find no further shortages, it will be reported as a significant deficiency in the letter to the owner and the board, with a recommendation that the controller review a sample of reconciliations each week and that any shortage over $25 be documented and reported to the controller the next morning.
Conclusion
The nightly reconciliation is well designed but did not operate effectively enough to rely on: two deviations in 46 route-days give an upper deviation limit of 13.1 percent, above the 10 percent tolerable rate, and one deviation involved an uninvestigated cash shortage. The audit will treat control risk as maximum for driver collections, expand confirmations and credit testing for cash customers and report the deficiency to the owner and board.
References
Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2020). Auditing and assurance services (17th ed.). Pearson.
Doyle, J., Ge, W., & McVay, S. (2007). Determinants of weaknesses in internal control over financial reporting. Journal of Accounting and Economics, 44(1-2), 193-223. https://doi.org/10.1016/j.jacceco.2006.10.003
Nelson, M. W. (2009). A model and literature review of professional skepticism in auditing. Auditing: A Journal of Practice & Theory, 28(2), 1-34. https://doi.org/10.2308/aud.2009.28.2.1
What the ACC 421 Module 3 instructions ask for
The Module Three assignment in ACC 421 usually asks you to evaluate internal control over a transaction cycle and test whether key controls operate effectively. Expect to identify the controls that address specific risks, describe how each would be tested by inquiry, observation, inspection or reperformance, design a sample using attribute sampling with a tolerable deviation rate and confidence level, evaluate the deviations found and conclude whether the control can be relied on. Many versions also ask how the conclusion changes substantive testing and what should be communicated to management. Define what counts as a deviation before testing, show the sampling parameters and explain each conclusion in terms of the audit plan.
How this ACC 421 Module 3 internal control testing assignment example is built
The sample examines three controls at a linen rental company: a nightly reconciliation by route supervisors of each driver's handheld cash report to the deposit, sales manager approval of credits over $250 and monthly customer statements mailed by the receivables department. For the reconciliation, the population is about 7,700 route-days; with 95 percent confidence, a 10 percent tolerable rate and a 1 percent expected rate, the sample is 46. Two route-days lacked a supervisor's sign-off, and on one the deposit was $140 short with no follow-up. The upper deviation limit is 13.1 percent, above tolerable, so the control is not relied on, and substantive tests of cash customers are expanded.
Where the ACC 421 Module 3 rubric puts the points
Rubrics for the ACC 421 control testing assignment typically score identification of key controls and the risks they address, the design of tests, the sampling plan, the evaluation of deviations, the conclusion on reliance and its effect on substantive procedures. Top papers define deviations precisely, choose sampling parameters with reasons, compute or look up the upper deviation limit rather than relying on the sample rate, and consider the nature of deviations as well as their number. Graders reward a clear link between the control conclusion and changes to substantive testing, along with a recommendation for management. Common deductions include concluding a control is effective because the sample deviation rate is below tolerable, ignoring the qualitative significance of a deviation that hides a cash shortage, and testing a control that does not address the stated risk.
ACC 421 Module 3 help: the mistakes that cost points
Control testing papers most often go wrong by comparing the sample deviation rate, here 4.3 percent, with the tolerable rate instead of the upper limit, which builds in sampling risk. Another frequent error is treating a missing signature as trivial without asking whether the review actually happened. Students also forget to explain what happens next: a control that fails means more substantive evidence, not a failed audit. If your case covers purchasing, payroll or IT general controls, the same plan applies and we can design it around your controls. Write the definition of a deviation in one sentence before selecting the sample; it prevents arguing about results afterward.
Get ACC 421 Module 3 written to your instructions
Send the ACC 421 Module 3 case and instructions. The paper will identify the key controls, design the tests and sample, evaluate deviations against the tolerable rate and explain what the result means for the rest of the audit. Your first one is free of charge; two days is typical. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 421 Module 3 questions, answered
Where can I find a free ACC 421 Module 3 internal control testing sample?
This page shows a full ACC 421 Module 3 assignment testing a cash reconciliation control with attribute sampling and evaluating the deviations.
What is a test of controls?
A procedure that evaluates whether a control operated effectively throughout the period, using inquiry, observation, inspection of evidence and reperformance.
What is the upper deviation limit?
The highest deviation rate in the population consistent with the sample results at the chosen confidence level. It is compared with the tolerable rate to decide reliance.
What happens if a control fails the test?
The auditor cannot rely on it, assesses control risk higher and performs more extensive substantive procedures for the related assertions.
Should deviations be communicated to the client?
Yes. Significant deficiencies and material weaknesses must be communicated in writing to management and those charged with governance.