Auditing canceled ticket sales

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Reference no: EM13868262

Auditing Canceled Ticket Sales

Ticket sales are “booked” over the internet and an entry is made debiting a receivable account (from the credit card) and crediting sales.

When a ticket is canceled, the only entry made is to a database that maintains specific seat availability.

Customers are emailed a “Cancellation Form” when this occurs.

No accounting journal entry is recorded, and no refund occurs until the customer requests (in writing) a refund.

If the customer never requests the refund, the receivable is billed to the credit card and collected.

After it is billed to the credit card, many customers complain and are given a refund, and then an accompanying journal entry is made for the cancellation.

After analyzing the “Canceled Form”, you note that it says nothing about requiring a written cancellation for a refund.

The internal controller responded to your inquiry about the policy of requiring a written request for a refund by indicating that the policy is presented on the website’s “business policies and procedures” section.

The controller says that in total about two-thirds of the customers ask for and receive refunds, while one-third do not.

The CPA’s attorneys say that while it is probably a questionable policy, they are unable to say it is illegal—in fact, it probably is not.

1. Is this a significant deficiency and should it be reported to the audit committee?

2. Should it be reported elsewhere? Where? How?

3. What impact should this policy have on the audit?

Reference no: EM13868262

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