Auditing case study

Number of Words : 1128

Number of References : 5

Assignment Key : A-18614

Contents

  • Content for this assignmentThis report is based on the following case study -
  • Content for this assignmentTask details:
  • Content for this assignmentThis isan individualassignment.
  • Content for this assignmentPaul Hewsonwho has extensive interest in music and fashion has set up a fashion clothes
  • Content for this assignmentbusiness in July 2011, Music Fashion Ltd, with his two long term friends Larry Mullen and
  • Content for this assignmentAdam Clayton, and have recently listed Music Fashion Ltd on the ASX.
  • Content for this assignmentLarry Mullen was previously the marketing executive for a clothing manufacturer that
  • Content for this assignmentdistributed products through major department stores throughout Australian and the UK and
  • Content for this assignmenthas a sound network within the retail sector. Adam Clayton has worked as an accountant for
  • Content for this assignmenta medium-sized family company in the furniture industry for many years.
  • Content for this assignmentNew fashion wholesalers often find it difficult to gain retail accounts, as many retailers are
  • Content for this assignmentdismissive of new designers. However Paul has managed to get his garments into two
  • Content for this assignmentmajor Australian retail store chains. The retail store require the goods to be supplied on
  • Content for this assignmentconsignment, with the stores entitled to return any unsold items within two weeks of the end
  • Content for this assignmentof the season. In addition, the payment terms for store are 30-days after consignment sales.
  • Content for this assignmentAs a result cash is very tight as 60% of inventory is sold on consignment.
  • Content for this assignmentMusic Fashion Ltd has the following staff:
  • Content for this assignment three directors, Paul, Larry and Adam
  • Content for this assignment secretary/receptionist
  • Content for this assignment warehouse manager
  • Content for this assignment assistant to the warehouse manager
  • Content for this assignment accounts receivable clerk
  • Content for this assignment accounts payable clerk
  • Content for this assignmentAll operations are conducted from a central office/warehouse facility and during your interim
  • Content for this assignmentaudit you note the following processes for the purchases function.
  • Content for this assignmentThe warehouse manager orders fashion goods from the suppliers as identified by Paul.
  • Content for this assignmentPrice quotes are obtained by the warehouse manager usually via telephone contact with the
  • Content for this assignmentsuppliers. The warehouse manager then prepares an order form for fashion items,
  • Content for this assignmentquantities and prices and then sends this order off via a facsimile and the only copy of the
  • Content for this assignmentorder is kept by the warehouse manager.
  • Content for this assignmentThe warehouse manager the completes a purchase order in the inventory program on the
  • Content for this assignmentcomputer system and prints one copy of this form and sends a duplicate copy to the
  • Content for this assignmentaccounts payable clerk for filing in date order.
  • Content for this assignmentWhen the ordered goods are received at the warehouse, the warehouse assistant, checks
  • Content for this assignmentthe content of the goods received to the suppliers delivery note attached to the goods and
  • Content for this assignmentsigns the delivery note as evidence of this check. The purchase order is then recorded for
  • Content for this assignmentthe inventory received in the inventory program. The supplier delivery note comprises of two
  • Content for this assignmentcopies, and one copy is returned to the person delivering the goods for returning to the
  • Content for this assignmentsupplier and the other copy of the delivery note is forwarded to the accounts payable clerk.
  • Content for this assignmentThe accounts payable clerk raises a journal entry in the general ledger accounts payable
  • Content for this assignmentsystem to credit the supplier and debit inventory on hand. The delivery note is then filed
  • Content for this assignmentalphabetically in a folder of supplier delivery notes awaiting receipt of the suppliers invoice.
  • Content for this assignmentSupplier invoices received by the secretary/receptionist in the mail are forwarded to the
  • Content for this assignmentaccounts payable clerk for putting with the purchase order and supplier delivery note.
  • Content for this assignmentDetails of the invoice are matched to the purchase order and delivery note and calculations
  • Content for this assignmentfor supplier amounts confirmed. If the details of the invoice match to the purchase order and
  • Content for this assignmentthe invoice total is correct, the invoice is signed by the accounts payable clerk and then
  • Content for this assignmentprocessed for payment. Any invoices which are not matched to the purchase order or
  • Content for this assignmentdelivery note are forwarded with the purchase order and delivery note to the warehouse
  • Content for this assignmentmanager for follow up. The warehouse manager is to contact the supplier for follow up
  • Content for this assignmentand/or authorise the invoice for payment. The supplier invoice, purchase order and delivery
  • Content for this assignmentnote are returned to the accounts payable clerk for payment when the warehouse manager
  • Content for this assignmentis happy for the supplier to be paid and this authorisation is noted on the suppliers invoice
  • Content for this assignmentwith the warehouse manager’s signature and date.
  • Content for this assignmentA payment run is made every second Thursday with the accounts payable clerk selected the
  • Content for this assignmentsuppliers to be paid in the general ledger accounts payable system that interfaces with on-
  • Content for this assignmentline Banking and all general ledger accounts. A report is generated for suppliers to be paid
  • Content for this assignmentand this report listing each supplier, the invoice number and the amount is reviewed by the
  • Content for this assignmentsecretary who confirms copies of all invoices are attached to the report, and this review is
  • Content for this assignmentevidenced by signature and dating the report. The report is then reviewed by one of the
  • Content for this assignmentDirectors (Paul, Larry or Adam) and this is also evidenced by signature and date. The
  • Content for this assignmentreviewing director and the secretary both then both authorise the electronic payment via
  • Content for this assignmentelectronic banking. The authorised supplier payment report with attached invoices,
  • Content for this assignmentpurchase orders and delivery notes attached is then filed in payment date order.
  • Content for this assignmentAt the time of your final audit there had not been any changes to the purchases or payment
  • Content for this assignmentof supplier functions from your interim review. In the end of year audit testing a sample of
  • Content for this assignment100 supplier payments were tested and the following is a summary of this testing:
  • Content for this assignmentPayments showing evidence that all control activities had been
  • Content for this assignmentfollowed
  • Content for this assignmentPayments that had no supporting documentation attached 3
  • Content for this assignmentPayments that did not have approved purchase orders but all other
  • Content for this assignmentdocumentation was attached
  • Content for this assignmentPayments that did not bear evidence that the creditor invoice
  • Content for this assignmentcalculations had been checked
  • Content for this assignmentPayments that did not bear evidence as being authorised for
  • Content for this assignmentpayment by the secretary
  • Content for this assignmentPayments that did not bear evidence as being authorised for
  • Content for this assignmentpayment by a Director
  • Content for this assignmentReview of the subsidiary supplier ledger noted debit entries for
  • Content for this assignmentpayment corrections and sundry entries
  • Content for this assignmentThe aged supplier balances reflected amounts outstanding for 90
  • Content for this assignmentdays
  • Content for this assignmentREQUIRED
  • Content for this assignment1. Identify the inherent risks for Music Fashion Ltd’s due to their relationship with the two
  • Content for this assignmentmajor Australian retail store chains.
  • Content for this assignment2. Identify two financial report items that will be affected by these risks and the assertions
  • Content for this assignmentmost at risk.
  • Content for this assignment3. Note how the internal controls will impact on your audit approach for the year end audit
  • Content for this assignmentof the purchasing function.
  • Content for this assignment4. Explain the implications of the errors noted in the year end audit testing of controls.
  • Content for this assignment(Take into consideration any concerns with internal controls.)
  • Content for this assignment5. Briefly discuss how CAATs could be applied to assist your testing in the year end audit.

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