Company A (CA). is a distributor of disposable diapers located in Ontario. The company is private...

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Company A (CA). is a distributor of disposable diapers located in Ontario. The company is private but considering expanding operations to other baby product lines and will need to raise additional capital through debt or equity financing. The expansion proposal is in the preliminary stages. CA has been a client of your audit firm since its incorporation. The manager of the engagement has requested that you develop an audit plan to be followed in performing the audit of the sales, receivables, and cash receipts area and to meet with him to discuss the major factors that influenced your recommendations. Additional information related to the sales/receivables/receipts system follows: Approximately 70% of the sales are made to 12 drug and grocery store chains. The remainder of the sales is to approximately 250 independent stores. Chain stores generate approximately $6,250,000 revenue per year. The average invoice is $50,000. The chain head office places orders and shipments are made to individual stores. Cash receipts are usually 60-90 days after invoices have been mailed. • Independent stores account for approximately $3,750,000 revenue per year. The average invoice is $ 1.200. Cash receipts are usually 30-60 days after the invoice has been sent. The company has experienced some collection problems recently with some of the independents and is considering sales on a cash basis to these stores. Controls over the sales/receivables/receipts system are strong. There is adequate segregation of duties and few errors have been found in the systems in previous audits. Required: Prepare the report you will present at the meeting with the engagement manager. Company A (CA). is a distributor of disposable diapers located in Ontario. The company is private but considering expanding operations to other baby product lines and will need to raise additional capital through debt or equity financing. The expansion proposal is in the preliminary stages. CA has been a client of your audit firm since its incorporation. The manager of the engagement has requested that you develop an audit plan to be followed in performing the audit of the sales, receivables, and cash receipts area and to meet with him to discuss the major factors that influenced your recommendations. Additional information related to the sales/receivables/receipts system follows: Approximately 70% of the sales are made to 12 drug and grocery store chains. The remainder of the sales is to approximately 250 independent stores. Chain stores generate approximately $6,250,000 revenue per year. The average invoice is $50,000. The chain head office places orders and shipments are made to individual stores. Cash receipts are usually 60-90 days after invoices have been mailed. • Independent stores account for approximately $3,750,000 revenue per year. The average invoice is $ 1.200. Cash receipts are usually 30-60 days after the invoice has been sent. The company has experienced some collection problems recently with some of the independents and is considering sales on a cash basis to these stores. Controls over the sales/receivables/receipts system are strong. There is adequate segregation of duties and few errors have been found in the systems in previous audits. Required: Prepare the report you will present at the meeting with the engagement manager.

Answer rating: 100% (QA)

Audit Plan for Sales Receivables and Cash Receipts Area of Company A IntroductionThe purpose of this audit plan is to provide a roadmap for the audit of sales receivables and cash receipts area of Com... View the full answer