Janbec Limited is a distributor of health care products. It has about $450 000 in accounts receivable and about $600 000 in inventory. It has been a tough winter, with many people sick with the flu or falling on ice, breaking legs or dislocating shoulders so that they could not come in to work.
As a result, people have been helping out in various departments. For example, the accounts receivable clerk has been helping with payroll data entry and in receiving and shipping, making sure that forms and documents are fi lled in properly. The accounting manager has been helping the purchasing desk when placing needed orders for inventory replenishment, and the warehouse supervisor has also been helping out with purchasing, making sure that quantities are ordered that will fi t on the shelves.
A new clerk in the accounts receivable department is all thumbs at the computer and is painfully slow at data entry. However, she is bright and cheerful and seems to be catching up on the fi ling backlog. Her excellent telephone manner seems to also have sped up some of the late payments from customers, resulting in an excellent collection ratio in accounts receivable. Janbec uses an application service provider (ASP) for its computing needs. Users log in via the internet, enter data, and request reports. The ASP is a local computer store a fewblocks away, while the physical server is located downtown. Janbec prints all of the reports on premises after retrieving them from the ASP. If there are any problems with the software, they are dealt with by telephone.
REQUIRED
a. Explain control problems that could have arisen due to the employees' "filling in" and how these potential problems could be mitigated by Janbec management.
b. How does the use of the ASP affect the audit engagement?
c. What risks are present for Janbec with respect to the ASP?