Reference no: EM132712673

Super Technology Ltd is a global leader in the manufacture, integration and support of networking and telecommunications systems. The company sells broadband wireless products and a line of handset equipment to operators in emerging and established telecommunications markets worldwide. The auditor reported material weaknesses in the company's internal control to the audit committee.

• Significant deficiencies related to revenue and deferred revenue accounts and the associated cost of sales were noted. These materials weaknesses were evidenced by the identification of six separate transactions aggregating approximately $5 million in which revenue was initially included in the Company's financial statements before all criteria for revenue recognition were met. In addition, there were other transactions for which there was insufficient initial documentation for revenue recognition purposes. But which did not result in any adjustments to the Company's financial statements. If unmediated, these significant deficiencies have the potential of misstating revenue in future financial periods.

The Company's planned remediation measures reported to the audit committee include the following:

a. The Company plans to design a contract review process in China requiring financial and legal staff to provide input during the contract negotiation process to ensure timely identification and accurate accounting treatment of nonstandard contracts.

b. The Company conducted a training seminar regarding revenue recognition, including identification of nonstandard contracts, in Australia and a similar seminar in China. The Company plans to conduct additional training seminars in various international locations regarding revenue recognition and the identification of nonstandard contracts.

c. The Company will begin requiring centralised retention of documentation evidencing proof of delivery and final acceptance for revenue recognition purposes.

Required:

Problem 1: Use the above disclosure as a starting point, discuss the challenges regarding internal controls that a company may face in doing business internationally

Problem 2: The company has disclosed its planned remediation efforts. How might the auditor use that information during next year's audit in terms of planning?

Problem 3: Identify and explain potential analytical procedures that might be applied in the next year's audit to provide evidence that the problems detected have been remedied.

Problem 4: Identify and explain substantive procedure that might be applied in the next year's audit to provide evidence that the problems detected have been remedied.