Froggledore Realty Limited is a brokerage firm that employs 35 real estate agents. The agents are given an office and basic telephone service (estimated at a $250 value per month) and are paid on a commission basis. The building has wireless computing so that agents can bring in their own computers. Each office has its own lock, and agents are responsible for the contents of their offices. Calls that come into the office are allocated to agents based upon their region in the city, with each agent having a clearly defined region for sales.
Potential purchasers who call in are assigned to the on-call listed agent. The office manager is responsible for accounting and for supplying the office with software and other supplies. She purchased a copy of real estate sales management software (for $750) for the office and has been burning copies, which she sells to new real estate agents for $100; she figures it pays for her time (she usually burns them on her home computer).
The owner of the business, Jim Froggledore, has told her and the accounting staff to bring in any invoices that they have for home computing so that he can use them for the business. Depending upon how well the company does, Jim gives employees a 10- to 20-percent bonus at the end of the year for the invoices.
Jenny, the receptionist, is a freelance writer and has been writing advertising copy for the business in her spare time. She charges for this as an editing contract from her small business and takes supplies from the office, which she and her husband (not employed by Jim) use for their business.
Jim recently had the offices renovated, with new carpeting and wallpaper, by his sister’s business. She also painted the recently renovated basement at Jim’s home and installed indoor/outdoor carpeting on his patio; all of this was included in the bill to the business. Jim prorated the invoice and charged the real estate agents for the renovations to the office.
REQUIRED
a. Assess the quality of corporate governance at Froggledore Realty Limited.
b. Is the company auditable? Why or why not?
c. If you did decide to audit the company, what audit approach would you use?
d. Are there any additional audit procedures that would be required? Why or why not? List any additional audit procedures that you would recommend, stating the fraud risk that they address and the associated audit objective.