(a)Toys Havens Ltd is a manufacturer of childrens toys and is anew audit client for your audit...
Question:
(a)Toys Havens Ltd is a manufacturer of children’s toys and is anew audit client for your audit firm. You are an audit supervisorof Benston & Co LLP preparing for both interim and final auditfor the year ending 31 December 2020. You are required to documentand assess the sales system, recommend control improvements to dealwith a specific fraud issue as well as undertake substantivetesting of revenue.
Toys Havens Ltd sells toys to a range of toy large andmedium-sized retailers in many countries. Sales are made through anetwork of sales staff employed by Toys Havens Ltd, but newcustomer leads are generated through a third-party company. Salesstaff are responsible for assessing the creditworthiness of newcustomer and proposing a credit limit which is then authorised bythe sales director. The sales staff have monthly sales targets andcan use their discretion to grant sales discounts up to a maximumof 10%. They then record any discount granted in the customermaster data file.
The sales staff visit customer sites personally and orders arecompleted using a two-part pre-printed order form. One copy is leftwith the customer and the other copy is retained by the salesstaff. The sales order number is based on the own identification(ID) number of the sales staff.
Toys Havens Ltd markets itself on being able to despatch allorders within three working days. Once the order is taken, thesales staff emails the finance department and warehouse despatchteam with the customer ID and the sales order details and from thisa pick list is generated. Sequentially numbered goods despatchednotes are completed and filed in the warehouse.
Sequentially numbered invoices are generated using the picklists for quantities and the customer master data file for prices.Standard credit terms for customers are 25 days and on a monthlybasis sales invoices which are over 70 days outstanding arenotified to the relevant sales staff to chase payment directly withthe customer.
CONTINUED
Required
(i) Identify the THREE (3)methods for documenting the sales system and describe them.
(ii) State TWO (2) advantages andTWO (2) disadvantages for each for any of thetwo methods described in (i) above.
(iii) Identify and explain SIX (6) deficienciesin the sales system of Toys Havens Ltd and provide arecommendation to address each of thesedeficiencies.
(b) State FIVE (5) controlobjectives for sales and dispatch system.
(c) Downlop Tyre Plc
You are an audit manager of Simpson & Co and currentlyresponsible for the audit of Downlop Tyre Plc, a company thatmanufactures and sells tyres to wholesale customers inEurope. Its draft profit before tax is £80m and total assetsare £335m for the financial year ended 30 April 2021. The finalaudit is due to commence shortly and the following matters havebeen brought to your attention:
Downlop Tyre Plc has a large portfolio of property, plant andequipment (PPE). In June 2020, the company carried out a fullreview of all its PPE and updated the useful lives, residualvalues, depreciation rates and methods for many categories ofasset. The finance director felt the changes were necessary tobetter reflect the use of the assets. This resulted in thedepreciation charge of some assets changing significantly for thisyear.
Required:
Describe ANY FIVE (5) substantive proceduresthe auditor should perform to obtain sufficient and appropriateaudit evidence in relation to the matters identified regardingdepreciation of PPE.
Accounting Information Systems basic concepts and current issues
ISBN: 978-0078025334
3rd edition
Authors: Robert Hurt