XYZ Inc is a manufacturer of power equipment. It has factories across the US and its customer
Question:
XYZ Inc is a manufacturer of power equipment. It has factories across the US and its customer base includes retailers as well as individuals, to whom direct sales are made through their website. The company’s year-end is 30 September 2012. You are an audit supervisor and are currently reviewing documentation of XYZ’s internal control in preparation for the interim audit.
XYZ’s website allows individuals to order goods directly, and full payment is taken in advance. Currently the website is not integrated into the inventory system and inventory levels are not checked at the time when orders are placed.
Goods are despatched via local couriers; however, they do not always record customer signatures as proof that the customer has received the goods. Over the past 12 months there have been customer complaints about the delay between sales orders and receipt of goods.
The company has investigated these and found that, in each case, the sales order had been entered into the sales system correctly but was not forwarded to the despatch department for fulfilling.
XYZ’s retail customers undergo credit checks prior to being accepted and credit limits are set accordingly by sales ledger clerks. These customers place their orders through one of the sales team, who decides on sales discount levels.
Raw materials used in the manufacturing process are purchased from a wide range of suppliers. As a result of staff changes in the purchase ledger department, supplier statement reconciliations are no longer performed. Additionally, changes to supplier details in the purchase ledger master file can be undertaken by purchase ledger clerks as well as supervisors.
In the past six months XYZ has changed part of its manufacturing process and as a result some new equipment has been purchased, however, there are considerable levels of plant and equipment which are now surplus to requirement.
Purchase requisitions for all new equipment have been authorized by production supervisors and little has been done to reduce the surplus of old equipment.
Required: Describe substantive procedures you should perform at the year end to confirm each of the following for plant and equipment:
(i) Additions; and
(ii) Disposals. Note: The total points will be split equally between each part.
Expert Answer:
Substantive Procedures Verification of PPE consists of an examination of related records and physical verification The auditor should normally verify ... View the full answer
