Elliott Transmitters (ET) imports and sells special telephone equipment such as portable telephones and car phones and
Question:
Elliott Transmitters (ET) imports and sells special telephone equipment such as portable telephones and car phones and also walkie-talkies. Its customers include chain stores, mail order companies and wholesalers. ET’s year-end is 31 December. It is early July and the audit team is carrying out the interim audit for the 1989 year-end. The senior in charge of the interim audit has prepared an audit planning memorandum, which sets out the salient features of ET’s business and performance in the past twelve months.
ET has about 275 customers. The average debt collection period is 7 weeks. In the past, ET has had very few bad debts; the total write-off for the year ended 31 December 1988 was less than £2,000. The company attributes this to the intensive credit investigations to which it subjects prospective customers.
Customers must have their creditworthiness checked by a commercial agency before they are allowed credit. They are then assigned a credit limit; ET refuses to supply goods if this would take them over the limit. Each month, the computer produces an aged list of ledger balances. All customers who are overdue (i.e. with balances over 30 days old) are sent a reminder letter........................
QUESTIONS FOR DISCUSSION
Preliminary note: An important feature of any real-life sales system would be a system for ensuring that credits given to customers (for faulty goods, returns, etc.) are correctly authorized and recorded. For reasons of simplicity, the sales credit system has not been included in this case study.
1. Flowchart the system for taking and accepting orders.
2. For each of the control objectives stated in Document 2.8, identify what you consider to be the key controls or weaknesses in the system.
3. Based on your work in Question 2, suggest appropriate audit tests to ensure that the control objectives are met and that sales and debtors are correctly stated. Remember that your tests need not be exclusively systems tests: substantive testing and analytical review may also be required.
Step by Step Answer:
