Advanced Auditing Final Review Case note

Topics: Audit, Internal control, Auditing Pages: 5 (1256 words) Published: April 16, 2014
Final Exam Review Practice Case
IPI Case:
1. Identify Accounting System Issues
System implementation
Lack of training
I: people try to override the system, inaccurate reporting
R: The company who installed the system needs to be contacted and hold training session for employees Glitches
I: inaccurate reporting, create room for error
R: Contact the company again and get them back and give them responsibility to fix the glitches

2. Identify Control Issues:
Understaffing people are overworked, may get sloppy
R: Hire more staff
Lack of segregation of duties, bookkeeper does the bank rec and A/R ledger R: Get someone else to do one of those duties
Mismatch b/w what’s shipped and what’s recorded as revenue since sales reported based on what they are supposed (when order is confirmed for shipment) but Louis goes down to the shipping department and adds a few more  COGS is correct but revenue is not R: Base revenues on actual quantities shipped

Year end cut-off error – Revenue: Takes 3 weeks to get the orders out but actg department records sales based orders R: System is changed so that revenue is recorded only when shipment is confirmed, send shipping log to the actg department so they know

3. Policy compliance
Costs capitalized to inventory
IPI’s accounting policies state that only the rental cost associated with production should be inventoried. Revenue not recognized upon shipment

4. Bonus:
Owner’s bias
Criteria b) Number of Units @ $65/unit  Validate the revenue in dollars as well as quantity Shipping logs  normalize them for what the customers really wanted Select a sample of quantity shipping and compare them to POs $65/unit: Select sample from sales ledger (dollar amt)  invoices (break down by quantity so can calculate average)  Shipping by  do analysis based on quantity shipped or PO Criteria c) Have to generate profit

Adjust NI by costs capitalized to inventory
Back out revenue (on units customers never ordered extras)
Cut off: look at the sales ledger from the last 3 weeks and compare to shipping log to identify which items are recorded prematurely  Sales ledger accrues before year end compared to shipping bill

Purple Glasses Inc (PGI)
Role: Internal auditor
Date: April 2
Explain to the Audit Committee how a review engagement would be planned Can a review memo similar to the one prepared by the auditors be prepared? Include procedures that auditors would conduct as part of the review engagement Express opinion on whether they should switch from audit to review Identify internal control weaknesses and recommendations

48-hour delivery guarantee:
All team members responsible to work
When one team member logs in the system automatically assigns the next order to the technian and the status changes automatically changes to “done”  Implication: might not actually get done but the system would not detect it “Read-only” profiles

W: Customers sometimes upload scanned copies of their prescriptions instead of entering the information themselves and expect the PGI technicians to enter it for them. However, the team member accss to the profiles is “read-only” I: They can’ tactually make any changes to the client profile, lead to incomplete information  incur additional time & cost to contac the customers to clarity the prescription specifications Provide assurance over the number of sunglasses donated reported on the website  expensive?

Other issues
Staffing: Tristin not intending to hire more staff for vacant positions Lacks a CFO, so Manager of actg reports to him directly

- both are on the board = Simon is

1. Review engagement memo
Engagement risk assessment:
Audited in the past
Keep the same audit firm
To that audit firm, engagement risk is up b/c owners retired and place more reliance on f/s so if sth were to go wrong, they’ll first to go to the auditors Materiality
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