Part 4. Accounts Receivable / Analytics & Excel

Item A. Accounts Receivable

Facts:

• You have been hired by a small privately held firm to analyze its accounts receivable department and assess how its internal accounting controls could be improved. The company operates a table manufacturing facility.
• The owner is a "hands on" individual and is at the business every day. However, the owner has no involvement in the accounting function.
• The only employee in accounts receivable is Nancy, an employee of 15 years. Nancy opens all cash receipts, credits the clients' accounts and deposits the money at the bank.

Required: Part 4 Item A

Answer the two questions below; be sure to explain your reasoning.

1. What internal control related risks does this company face?
2. What changes, if any, should be made?

Item B. Analytics & Excel

Facts:

• Your Audit team is performing the year-end Audit of XYZ Manufacturing ("XYZ") for the year ended 12/31/X3. In the brainstorming planning session, your team noted Management's aggressive attitude toward making both their budgeted annual sales and budgeted net income. Historically, XYZ's sales tend to be spread fairly uniformly throughout the year (i.e. XYZ is not a seasonal business). Also, in recent years, XYZ's sales have been increasing about 10% per year.
• You note the following calendar quarterly sales for the year-end 12/31/X3 and the two prior years - 12/31/X1 & 12/31/X2.

Calendar Year Ending	$ Sales in Quarter Ending March 31st	$ Sales in Quarter Ending June 30th	$ Sales in Quarter Ending September 30th	$ Sales in Quarter Ending December 31st
12/31/X1	$1,030,000	$980,000	$1,010,000	$1,020,000
12/31/X2	$1,110,000	$1,120,000	$1,140,000	$1,130,000
12/31/X3	$1,230,000	$1,220,000	$2,400,000	$3,000,000

Required: Part 4 Item B

1. Prepare a line chart --using Excel -- of Sales by Quarter by year. The Quarters should be on the horizontal axis; dollar sales should be on the vertical axis.Your chart should have 3 lines - one for each year. Your chart should have an appropriate title.
2. Based upon your review of the completed line chart, please explain any audit concerns you have and what, if any, additional procedures you would perform as a result of these concerns during the fieldwork for the year-end 12/31/X3 audit.