Questions:
Read the Bradmark Case located in the "Bradmark Case Description" folder and answer the following questions:
1) From the case description and the associated flowcharts, assess Bradmark's internal controls over its revenue cycle procedures.
2) Using the case description, the flowchart, the file structures, and the selected financial data below, specify an audit objective (that can be achieved using ACLTM) for each management assertion presented in the matrix below. For each audit objective, briefly describe the ACL test procedure. As an example, the first row in the matrix has been completed for you.
Selected Bradmark Financial Data
Sales 5,379,996.96
Accounts Receivable 4,752,257.70
Allowance for Doubtful Accounts (.02 x Sales) 107,600
Net Accounts Receivable 4,644,657.70
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Management Assertion
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Audit Objective
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Audit Procedures to be Performed Using ACL
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Existence or Occurrence
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Verify that the AR represents actually owed to Bradmark
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Use ACL to prepare confirmation letters for customers
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Completeness
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Determine that A/R represent all amounts owed by organization for purchases of goods and services as of the balance sheet date.
Ensure that shipped goods, services rendered, and/or returns and allowances for period are included in financials
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Review sales invoices for unusual trends and exceptions
Review Sales Invoice and Shipping Log Files For Missing and Duplicate Items
Review Line Item and Inventory Files for Sales Price Accuracy
To determined what are the unrecorded assets (AR)
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Valuation or Allocation
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Determine AR balance stated in net realizable value
Establish allocation for uncollectible accounts is appropriate
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Corroborate or refute AR is stated at reasonable Net Realizable Value (Aging A/R)
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Accuracy
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Ensure that revenue transactions are accurately computed, based on correct prices amd quantities.
Ensure AR subsidiary ledger, sales invoice file, remittance file are mathematically correct And agree with GL accounts
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Review sales invoices for unusual trends and exceptions
Review Sales Invoice and Shipping Log Files For Missing and Duplicate Items
Review Line Item and Inventory Files for Sales Price Accuracy
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3) Perform the ACL tests outlined in step 2 above. Hand in a report describing the audit tests and your conclusions about the results of the test. To document your findings include in your report ACL printouts showing details of test results and the command log.
4) Using the matrix format below, identify an operational (business) concern related to the revenue procedures. Briefly describe the audit objective and ACL procedures to answer this concern. Perform the ACL test and prepare a report with your conclusions. Document your report with ACL printouts showing details of test results and the command log.
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Other Operational Concerns
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Audit Objective
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Audit Procedures to be Performed Using ACL
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§ - Focus on large and
§ unusual transactions,
§ especially near period-
§ end
- Recognizing revenues from sales that did not occur
- Recognizing revenues BEFORE they are realized
- Failing to recognize cutoff points
- Underestimating allowance for doubtful accounts
- Shipping unsolicited products to customers, subsequently returned
- Billings customers for products held by seller
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