Answer the following questions based on the information presented for Cloud 9 in Appendix B to this book and in the current and earlier chapters. You should also consider your answers to the case study questions in earlier chapters.
Sharon Gallagher and Josh Thomas have assessed the internal controls at Cloud 9 as being effective at an entity level. This means that, at a high level, the company demonstrates an environment where potential material misstatements are prevented or detected.
Required
You have been assigned the task of documenting the understanding of the process for recording sales, trade receivables, and cash receipt transactions for wholesale customers. In your absence, Josh met with the Cloud 9 financial controller, Carla Johnson, and received permission to tape the interview, which is provided as a transcript (see Appendix B to this book). Using this interview transcript and other information presented in the case, you are asked to:
(a) Prepare a flowchart or narrative documenting your understanding of the sales to cash receipts process for wholesale sales.
(b) Identify any follow-up questions you would like to ask the client if aspects of the process are not adequately explained. You could address such questions to Carla Johnson or any other employee you deem appropriate.
(c) Identify the potential material misstatement that could occur in the sales to cash receipts process for wholesale sales.