Scrubs Unlimited sells surgical scrub apparel and surgical drape materials to hospitals. Typically the entire package is sold as an individual transaction. Consequently, individual transactions are often material to Scrubs Unlimited. The company has a standard sales contract, but it is often changed by the sales agent negotiating the sale and consequently, gross margin often varies significantly on different transactions. Sales agents modify payment and delivery terms also, which can affect the appropriate timing and amount of revenue that should be recognized. Management does not approve modifications to the sales contract in advance and the accounting function does not have a process in place to regularly review sales contracts to identify changes made by the sales staff.
The auditor believes the lack of controls over modifying sales contracts and accounting for them constitutes a material weakness. Why?