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.
Required:
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 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
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