Why auditors will review exceptional reports

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Question Sales ordering, goods despatched and invoicing systems You have gained a new audit client, Melinda Ltd. The company specializes in the manufacture of steel fabrication. You are the audit supervisor preparing for the forthcoming interim audit for the year ending 30 June 2019. Your audit is in respect of the sales systems in Melinda Ltd.

A range of large and small manufacturing companies, locally and overseas, purchase the finished steel fabrication products from Melinda Ltd. The company has five (5) sales staff responsible for evaluating the creditworthiness of new customers and proposing credit limits, which are then authorized by the sales director. Also, monthly sales targets have to be met by the sales staff. The sales staff use their discretion in granting sales discounts to customers, up to a maximum of 10%.

The sales staff record any discounts given to customers, and they have access to the master data file. The sales staff personally undertake customer sites visits, and orders are completed using a two-part pre-printed order form. One copy of the order is left with the customer, and the sales staff retains the other copy. The sales order number reference is based on the sales person's own identification (ID) number. Any orders that are received from customers are despatched within three working days. The sales staff then emails the accounts department and warehouse with their staff ID once the order is taken, resulting in details of the sales order and a sales report being generated.

Sequentially numbered goods despatched notes are completed and filed in the warehouse. Sequentially numbered invoices are generated using the sales report for quantities and the customer master data file for prices. Standard credit terms for customers are 30 days. Any sales invoices that are more than 90 days outstanding are notified to the relevant sales staff to chase payment directly with the customer.

Required:

(a) Identify five (5) areas that you will consider in the assessment of the audit risk of the sales the system of Melinda Ltd.

(b) State the advantages of using non-statistical sampling.
(c) Identify five (5) deficiencies in the sales system that will influence the transactions in Melinda Ltd. For each transaction, identify the key assertion at risk and explain why the assertion is at risk.

(d) For the deficiencies identified in (c) above, suggest one (1) monitoring control that can be implemented by Melinda Ltd to ensure that in the future, the internal controls will be working effectively.

(e) Explain two (2) reasons why auditors will review exceptional reports generated from the sales systems as part of their audit procedure.

Reference no: EM132983404

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