The audit procedures relating to sales/accounts receivable from an audit trainees’ audit files were as follows: Sales The only work completed on sales was as follows. No testing
The audit procedures relating to sales/accounts receivable from an audit trainees’ audit files were as follows:
Sales
The only work completed on sales was as follows. No testing of the internal controls over sales done as a substantive audit approach was taken. The total sales for computers, parts & peripherals and software in 2017 was compared to 2018 and the audit trainee concluded the change in sales from 2017 to 2018 was a minor variance and as such the sales were fairly presented in the financial statements for 2018. The company had excellent controls at year end to ensure revenue was recorded in the correct period. Accordingly, no testing was done to ensure that revenue earned in 2018 was not recorded in 2019.
EXHIBIT 3
SECTIONS FROM THE AUDIT TRAINEE’s AUDIT FILE CONT”D
Accounts receivable
Fifty negative confirmations were sent to the largest accounts. As none of the confirmations were returned no further work was done.
Customers have 30 days to pay invoices, but most take advantage of the 2% discount offered for payment within 10 days. A sample of five year-end balances were tested, and all payments were received subsequent to year-end, so accounts receivable were deemed reasonable at year-end.
Three of the samples tested for payments subsequent to year-end received discounts for being paid within 10 days. However, when the receipts were traced to the bank deposits, it was noted that the customers had made full payments and were received within the 10 day discount period. The discounts appeared to be reimbursed later by system-generated cheques, but the cheques could not be traced to any backup documentation. As a result of this lack of documentation, no additional work was done in this area. Since the customers had earned the discount, it was correct for them to be reimbursed.
Historically, the amount of uncollectible accounts ranged from 3% to 4%. In order to save time, Superior applied a blanket provision of 5% for uncollectible accounts. Credit procedures were tightened two years ago, and since then, the rate has been at the lower end of the historic range. Accordingly, 5% is quite conservative, allowing for potential understatement of receivables.
For the accounts receivable work performed, using concepts from audit sampling theory explain two deficiencies related to the audit trainee’s selected sample and the conclusions reached by the audit trainee on the samples selected (minor variances, immaterial). Provide the correct audit procedure you would recommend to address these deficiencies.
Deficiency Recommendation (Correct Procedure)
ii) Using case specific facts identify three deficiencies in the work performed on sales and accounts receivable (omitted procedure, incorrect evaluation of the evidence, weakness in the procedure performed) provide the risk and assertion not addressed as a result of the deficiency and an audit procedure that should be performed to address the deficiency. (Do not repeat any of the points mentioned in Part B i) above).
Deficiency Risk and Assertion Audit Procedure
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