Question

This case analysis relates to the case study, The details of the case study cover key aspects of a financial report audit.

For the purposes of this assignment, you are a senior auditor at Alex Gold Financial Services, an accounting firm. You have been assigned to the audit of Sheridan AV Ltd for the year ended 31 March 2021. The managing director of Sheridan AV, David Sheridan, is considering having Sheridan listed on the stock exchange and the Audit Partner, Billy Bromus, has suggested an audit in advance of this application.

Sales process at Sheridan AV As you know, I’ve been to see various members of staff at Sheridan AV, and I’ve interviewed them about their sales process. In this short presentation I’m going to let you know some of the details about that sales process. Customers can place an order in one of three ways: (1) A telephone call to Sheridan AV (2) An email to Sheridan AV (3) Or they can place an online order using the online sales system. Daisy Sinclair is the sales assistant - whichever of these methods is used, Daisy is the first point of contact. When Daisy receives an enquiry she fills in an initial enquiry form. Here’s an example… It’s on a pre-numbered sheet and it shows the name and contact details of the customer … and details of the purchase query. If the customer requires credit then Daisy begins a credit check procedure – I will cover this process in a separate video message. If the customer does not require credit then she begins the sales process…The goods are picked from the warehouse. They are loaded onto the lorry for delivery… along with the remaining two copies of the dispatch note. Security checks goods in the lorry to a sample of dispatch notes. And then the driver sets off. The goods are delivered to the customer. The customer signs two copies of the dispatch note. The customer keeps one copy. The driver keeps the other copy. The driver’s copy is then returned to Rob Cole in the warehouse. Rob checks the dispatch notes to ensure all the good have been delivered and signed for by the customer. If, for any reason, the goods have not been delivered then they are returned to the warehouse. The order form is amended and sent to the sales department so that a new delivery date can be arranged with the customer. Once this is done the order form is returned to the warehouse so that the new delivery can be authorised. If the goods have been delivered, Peter Fillion, the Warehousing/Distribution Manager checks the order against the dispatch note. If all is in order he passes them to Margaret Blake in the Sales Ledger role.

Billy Bromus (the Audit Partner) and Graeme Moore (the Audit Manager) would like your team to present to them the key risks you have identified so far in your audit.

How is there a segregation of duties here?

• Identify the control risk
• Describe the factors that led you to identify the control risk
• Explain why you feel it is a key control risk
• Describe what testing you would plan to do to address the control risk

Answer 1

Seggregation of Duty:

The seggregation exists because the persons performing the following activities in the Sales process end to end are different -

• Order Receiver
• Dispatch Responsible
• Security check of Dispatch
• Recording the Sales

Control Risk

Credit check responsibility with Daisy the sales assistant.

Factors that led to the identification

Credit check is a specialized activity.This activity is a seperate function.In the current case this is not seperate and hence this led to to identififcation of the risk.

Why a Control Risk:

Sales team are always under pressure to achieve higher numbers.They have their incentives linked to same.It is very much a possibility that in order to achieve numbers they migt compromise on the credit worthiness of customers.This might increase te Sales numbers but will have impact on the collections and ultimately might lead to higher collection costs and bad debt costs.

Testing:

Audit of credit Sales will have to be conducted.The process adopted to establish their credit worthiness by Daisy and also the ageing of such sales which would further bring to light if sales ave happened to Customers would cannot pay.